Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — ORAL ANSWERS TO QUESTIONS

Mr. Speaker: I appeal for short supplementary questions and answers.

ENVIRONMENT

Short Tenancies

Mr. Hordern: asked the Secretary of State for the Environment whether he will introduce legislation to allow landlords to offer accommodation to tenants for short periods of up to one year without restrictive power of tenure, for the tenant.

The Secretary of State for the Environment (Mr. Peter Shore): Not unless I was convinced that any proposal which implied that tenants would not have the protection afforded by the Rent Acts had advantages that outweighed the obvious disadvantages to tenants.

Mr. Hordern: Is it not clear that there is a serious shortage of temporary accommodation? Is it not also clear that there are many people who are looking for temporary accommodation and a substantial amount of housing which would be made available if it were not for the very restrictive nature of present legislation? Will the right hon. Gentleman look at this matter again and see whether he can do something to ease the plight of those many families who are looking for short-term accommodation?

Mr. Shore: I accept that there is a need for accommodation generally, and within that general need there is a need for particular people to have temporary accommodation. The hon. Gentleman's proposal has, in a sense, a superficial attraction in addressing itself to that

need. The real difficulty is that I do not believe that one can easily work out proposals that would not lead to the progressive and rapid undermining of the whole system of security of tenure in the private rented sector.

Mr. Sainsbury: Is the Secretary of State aware that most authorities seem to be of the opinion that the proposal would be beneficial to the supply of accommodation available to people seeking homes, particularly people seeking their first homes? Can the right hon. Gentleman say what information or what research he requires to be convinced one way or the other? If he can, that would give those who believe that it would be advantageous an opportunity to put the facts before him.

Mr. Shore: I am certainly not aware of any overwhelming body of evidence in favour of the viewpoint that the hon. Gentleman has just expressed, but I would also say—this is relevant to the supply of and demand for relatively short-term occupation—that to my mind there is today in the private rented sector a high degree of turnover. I was struck by the fact that according to the 1976 general household survey figures an estimated number of more than 400,000 lettings and relettings took place in that year alone in the private rented sector.

Mr. Douglas-Mann: Does my right hon. Friend agree that if the proposal were adopted every new letting would be on the basis of a one-year letting and rent regulation would totally disappear as a consequence, because no one would dare challenge the rent that had been proposed, for fear that his tenancy would not be renewed?

Mr. Shore: My hon. Friend has put his finger on the very difficulty. I do not see how one can police such a system without unacceptable repercussions across the whole rented sector to which he referred.

Mr. Rossi: Does the Secretary of State agree that figures have been canvassed which suggest, first, that there is a crude surplus of accommodation over families requiring it, and, secondly, that there are about 750,000 empty properties? If those two figures are correct, if the 750,000 empty properties could be brought into supply, problems of rent control and


security of tenure would rapidly disappear. Would not it be right to encourage people with empty properties to bring them into use by telling them that if an empty property is let security of tenure will not apply to that new letting of property at present not being used?

Mr. Shore: The whole question of which new lettings would be covered by the Rent Acts and which would not would be a very tortuous and difficult business.

Mr. Rossi: Where there is a will, there is a way.

Mr. Shore: A major survey on empty property is now being undertaken, and it will establish not merely the numbers of properties that are empty but the reasons. I think that this will give us a much firmer basis of fact on which to consider these questions.

Theatres Trust

Mr. Hugh Jenkins: asked the Secretary of State for the Environment, in view of the fact that the Theatres Trust has exhausted its own funds, if he will provide financial aid to enable the Trust to continue to perform its consultative role under the General Development Order 1977.

The Minister for Housing and Construction (Mr. Reginald Freeson): It was made clear when the Theatres Trust was established that public funds would not be available for it.

Mr. Jenkins: Is my right hon. Friend aware that if he were as well informed on this subject as he is on so many others he would not have given me that answer? Will he ask my right hon. Friend the Secretary of State to receive a deputation consisting of Lord Goodman, my right hon. Friend the Member for Huyton (Sir H. Wilson), the hon. Member for Canterbuy (Mr. Crouch) and myself, who will seek to explain to him the unusual circumstances which have arisen and which cause us to seek his aid in our task?

Mr. Freeson: I assure my hon. Friend that I am reasonably well informed on the background to this matter, and no doubt my right hon. Friend the Secretary of State will have heard the request. As for the general position, I am also quite

willing to clock again into the facts and consider the matter further, but the position is as I stated it at the outset.

Housing Revenue Accounts (Deficits)

Mr. Michael Morris: asked the Secretary of State for the Environment what proportion of the deficit on housing revenue accounts is now met from rents.

Mr. Freeson: On the latest available information for a full financial year, the proportion of housing revenue account costs of local authorities in England in 1977–78 covered by rents was 56·5 per cent.

Mr. Morris: Is not that a grossly misleading figure when the official figure produced in Cmnd. 6393, the White Paper on public expenditure, referred to rebated rents and was given as 43 per cent. and is currently 44 per cent.? Are we to understand from the Government that they have now totally abandoned the policy as laid down in that White Paper that after rebates the target should be 50 per cent., as further emphasised by the Chief Secretary to the Treasury?

Mr. Freeson: There is nothing misleading about what I have said, any more than it would be misleading to indicate the figures for rent allowances in the private sector. Certainly the figure quoted by the hon. Gentleman for the aggregate rent income, following rebate, of about 44 per cent. is correct. I was speaking initially of gross rent income, which is what goes into the housing revenue account. As has been made quite clear many times in the House and elsewhere, the figures referred to in the White Paper on public expenditure were projections. They were not target figures.

Mr. Frank Allaun: Is not Labour in favour of maintaining the subsidies both for owner-occupiers and for council tenants? Is it not a fact, implicit in the question just asked, that Conservative Members and the Conservative Party are in favour of cutting council house subsidies and thereby deliberately raising rents for 6 million families?

Mr. Freeson: I believe that one must draw that conclusion, and a much worse conclusion as well, because, in addition to that, it is the Conservatives' intention to cut back massively on investment in public sector housing. They have been


asked their views on this several times and have never made their position clear. The question of the hon. Member for Northampton, South (Mr. Morris) is also to be criticised because it reflects a lack of understanding of what goes into housing revenue accounts. They are not concerned simply with the cost of running existing estates, as the hon. Gentleman well knows.

Mr. Heseltine: Is it not quite clear that the Minister for Housing and Construction has been providing one set of figures in order to avoid giving the figures which the House has been seeking to obtain? Is it not true that the White Paper, Command 6393, about which the Minister has been questioned, set out quite clearly that the percentage of costs covered was 43 per cent., that it was the Government's intention that it should rise to 50 per cent. or over, and that the Government even went so far as to project a saving in public expenditure of £180 million a year to be made by 1978–79? Will the Minister now say that the figures included in the Government's White Paper are no longer to be taken as reliable?

Mr. Freeson: I am afraid that the hon. Gentleman will either constantly not understand or constantly misinterpret answers that he has been given. The figures I have quoted, and which have been exchanged across the Floor of the House, are not new. Both figures, the gross rent income and the net rebated rent income, have been well established for some time. There is no question of not providing that information on the Floor of the House.
As has been made clear previously to the hon. Gentleman and other hon. Members, the White Paper to which he refers set down a series of projected figures. They were not target or policy figures. They were influenced, and will continue to be influenced—as will be the savings figure to which the hon. Gentleman referred, which has also been explained previously—by, for example, changes in interest rates. The changes in interest rates up and down over a period of time have already had a marked effect on the total level of subsidy paid into the public sector.

Mr. Morris: I have had a grossly misleading answer from the Minister for

Housing and Construction and will seek to raise the matter on the Adjournment.

Mr. Speaker: There is a formula for seeking to raise the matter on the Adjournment.

House Building

Mr. Skinner: asked the Secretary of State for the Environment what are the latest figures for house building in the public and private sectors; and if he will make a statement.

Mr. Shore: The figures for May were published on 6th July. After seasonal adjustment, there were 9,800 public sector starts and 11,300 completions in Great Britain. For the private sector the figures were 12,100 starts and 12,400 completions. While the public sector figures continue to be disappointing, the improvement in the private sector figures this year is being maintained.

Mr. Skinner: But I think my right hon. Friend will agree that overall, over a fairly extensive period, the figures have been extremely disappointing, assisted by such an example as the Broad Meadows bungle at South Normanton in my constituency. Will my right hon. Friend also accept that these policies have been assisted greatly by the inflicted cuts in public expenditure arising out of International Monetary Fund policy?
Will my right hon. Friend take on board the fact that most of us on the Labour Benches recognise that we shall have an uphill battle to get the Tory local authorities to build more, and that he must see to it that the demand is made and that everything is monitored by his Department?

Mr. Shore: I am aware, of course, that there were cuts in the housing programme following the IMF negotiations, but I think that the scale of the cuts ought to be borne in mind. Looking at the English public sector figures, I note that the public sector starts that we achieved in the highest year of our period—1976—amounted to 148,800. What we have budgeted and allowed for in 1977 and again in 1978 are figures which are only a very little short of that—137,000 in both years. The problem which is emerging is that what we have budgeted for is being substantially underspent due to many factors, and not least, in my view,


to the fact that most of the district housing authorities are no longer in Labour hands.

Mr. Budgen: Will the Secretary of State confirm that, if the Government were to cut the central Government contribution to indiscriminate subsidies in the public sector, that would allow a cut of about 3p in the standard rate of income tax?

Mr. Shore: I will not verify those figures. We can all, as it were, make our calculations, but the hon. Gentleman should ask himself whether the same people who were paying the increased rents would be gaining from the decreases in taxation.

Mr. Molloy: Will my right hon. Friend consider the legality of the position which now exists in the London borough of Ealing since the Tories have taken over? Housing schemes which had been started, with contracts signed, are now to be stopped and considerable amounts of public money are to be paid in compensation to the private construction company. Will he consider whether that is right and proper and say whether he can do anything about it?

Mr. Shore: I very much deplore arbitrary and abrupt changes in public housing provisions, which inevitably involve heavy costs for local authorities. If my hon. Friend will send me the details, I shall certainly look into the matter.

Mr. Heseltine: When the Secretary of State seeks to put the responsibility for the reduction in public sector housing on Conservative authorities, what excuse has he for the 40 per cent. reduction in the city of Manchester's council house building programme this year as compared with last year, bearing in mind that it is Labour-controlled?

Mr. Shore: I have been referring to the generality of district housing authorities—district councils, of which the great majority are in Conservative hands. There is no doubt that there are circumstances in Manchester which are entirely explicable. The hon. Gentleman will see a very substantial increase this year in Manchester, but we shall not see any substantial increase in London or in a number of other authorities which are

controlled by the hon. Gentleman's party.

Coastal and Offshore Environment

Mr. Adley: asked the Secretary of State for the Environment what is the involvement of his Department in protecting the coastal and offshore environment.

Mr. Shore: I have responsibilities in the fields of amenity, conservation, coast protection, oil and chemicals on beaches and discharges to coastal waters; local authorities, other Government Departments and other bodies such as water authorities also have important functions to fulfil.

Mr. Adley: Is the right hon. Gentleman aware that many people who live on and around our coastline feel that it would be more appropriate if a Department with the title of his Department were not only to have more responsibility but perhaps the overriding responsibility for the increasing pressures on the coastline, particularly as the result of the activities of oil companies? The Minister has read out a long list of other Departments. Is he aware that the fact that there are so many other Departments involved means that anti-social activities, which may be in the minds of companies such as oil companies, can be carried out regardless of the public interest and one Department can be picked off against another? Will he, therefore, consider raising the overall question with the Prime Minister, so that we can get something done about it?

Mr. Shore: The hon. Gentleman has phrased the point in very general terms, and it is a little difficult for me to comment upon it. He must realise—as I think the House accepts—that there has to be a broad division of responsibility between that for oil which is released at sea, where, of course, the Department of Trade is in the lead, and that for those occasions when oil discharged at sea comes ashore. In this case we are very much in the lead, and we have considerable responsibilities, which we exercise in close consultation with the local authorities.

Mr. Blenkinsop: Will the Minister take the opportunity of paying tribute to the excellent work in coast protection done


under the Coast Protection Act, which was introduced in this House many years ago by a Labour Government—it was introduced by me—to safeguard much of the coastline of this country?

Mr. Shore: I believe that the protection of our coastline is a major function and responsibility, and I willingly acknowledge the very important contribution that my hon. Friend has made.

Sir Bernard Braine: Can the right hon. Gentleman confirm that it is his responsibility, and his alone, to co-ordinate all matters relating to environmental safety? I have particularly in mind 33,000 people living on Canvey Island and the possible interaction between an excessive concentration of oil, gas and chemical storage on the one hand, and dangerous and hazardous cargoes in the estuary, on the other? Has the right hon. Gentleman yet grasped the fact that the Health and Safety Executive has just completed a report which proves beyond doubt that Canvey is the most endangered community in the country and yet arrives at the lunatic conclusion that there may be further oil refinery development? Will he arrange to make a statement on this subject before the House rises?

Mr. Shore: I am not at all sure that I accept what the hon. Gentleman said, although I understand his legitimate concern for the people of Canvey Island. This report is a very thorough one and it is very valuable. The hon. Gentleman knows very well that there are a number of planning inquiries pending in which consideration of this report will, I have no doubt, be a very relevant factor.

Sir B. Braine: But will the Minister make a statement?

Coastal Erosion

Mr. Newens: asked the Secretary of State for the Environment, if he will make a statement of his policy towards prevention of coastal erosion.

Mr. Shore: My Department examines schemes submitted by the maritime district councils under the Coast Protection Act 1949 to ensure that they satisfy certain requirements before loan consent is given and central Government funds are made available for grant. The most important

of these is that the schemes should be technically sound and cost effective.
I have no immediate plans for a change of policy.

Sir Bernard Braine: The sooner we have a General Election the better.

Mr. Shore: The hon. Gentleman is behaving in a very intemperate way, which I hope no other hon. Gentleman will wish to emulate.

Mr. Newens: Is it not both astonishing and appalling that in this day and age no central records are kept of the amount of land lost by coastal erosion? Is it not a fact that loss of land in one area may be caused by natural or man-made factors in another area controlled by a different local authority? Is it not high time that some steps were taken to keep a centralised record and to monitor what is happening, bearing in mind the tremendous ravages of the seas over the centuries, which, even today, are making their effect felt, particularly on the east coast in Essex, Suffolk and Norfolk?

Mr. Shore: I certainly acknowledge, as my hon. Friend says, that East Anglia in particular has suffered from coastal erosion. I also accept what he says about the desirability of having a national survey of our whole coastline. I am afraid that I cannot tell him when it would be possible for us to embark upon such a survey, but I shall certainly keep it in mind.

Mr. Crouch: Can the Secretary of State say how the Government will conduct such a national survey when one part of the responsibility for coast protection and sea defences is in the hands of his Department and the other part is in the hands of the regional water authorities responding to the Minister of Agriculture, Fisheries and Food? Does he not think that the time has come when the Government should consider that the protection of our coastal areas from erosion from the sea and damage from the sea through storms should be in the hands of one Minister and one Minister alone?

Mr. Shore: This matter has been looked at previously and the general view has been that there is a distinction between flood control and coastal erosion. That is the basic distinction. I agree that at a certain point there is an overlap


between the two. Whether this can be more satisfactorily sorted out in administrative terms or departmental terms is not exactly a matter for me, but, of course, I am quite willing to listen to any suggestion.

Mr. Watkinson: Does my right hon. Friend accept that in areas such as that of the River Severn, where there are problems of erosion, there is great difficulty in ascertaining responsibility for the problems of erosion? Does he not also acknowledge now that the costs of dealing with the problems of erosion are so enormous that we may have to consider some form of national scheme in order that the burden can be properly shared, as it is frequently beyond the capacity of riparian owners?

Mr. Shore: As I am sure my hon. Friend knows, there is a Government grant scheme, which is on a sliding scale, which can actually rise—depending upon the circumstance of the authority and the demands placed upon its ratepayers—to 79 per cent. of the cost of the work.

Mr. Ridsdale: Will the Minister pay tribute to the work done by voluntary associations at present, in view of the shortage of funds available for coastal protection? Will he say what the cutback by the Government has been in the last four years in terms of funds available for coast protection?

Mr. Shore: Yes, as a matter of fact I can help the hon. Gentleman with that figure. The expenditure in the three financial years 1975–76, 1976–77 and 1977–78 was £6·1 million, £5·4 million and £5 million. The hon. Gentleman will be interested to know that far from there being a cut-back in this current year, it has been increased to £11·9 million.

Housing Policy (London)

Mr. Dykes: asked the Secretary of State for the Environment what plans he has to meet the leader of the majority group on the Greater London Council to discuss housing policy.

Mr. Freeson: None, Sir.

Mr. Dykes: Could the Minister try a little harder? As the policy of homesteading and council house sales promoted by the GLC under Conservative

control is now so manifestly and overwhelmingly popular among the members of the public, should not the Minister be more positive and have a meeting with the GLC and give full encouragement to these two key twin elements of the new GLC housing policy?

Mr. Freeson: From time to time, Ministers, including myself, meet the leader, as we meet leaders and chairmen of other local authorities, on housing and other matters. I have no present plans to do so, and I have no reason to do so on the grounds that have been put to me. I would make only this comment: there has been a lot of huffing and puffing and windy talk about homesteading and other great successes. So far, I understand that about 100 houses have been sold under the homesteading scheme in London.

Mr. Douglas-Mann: Will my right hon. Friend consider whether it would be desirable for him to meet the leader of the GLC, because he would then have the opportunity of pointing out to him the effects of the policy to which the hon. Member for Harrow, East (Mr. Dykes) referred? In the words of an official of the GLC, in response to a request for a transfer for a family in very acute housing need, the GLC replied:
I very much regret that the position as far as houses"—

Hon. Members: Reading.

Mr. Douglas-Mann: I am quoting.

Mr. Speaker: Order. It is not in order to quote at Question Time.

Mr. Douglas-Mann: An official of the GLC pointed out that the position in terms of houses has become very much more difficult as a direct consequence of the GLC's homesteading scheme and the fact that 50 per cent. of the houses that became vacant had to be sold, so that transfers became infinitely more difficult.

Mr. Freeson: I do not think that the point with which my hon. Friend is justifiably concerned arises from the homesteading scheme, for the reason of the figure that I quoted. Certainly there is growing concern about the number of properties that are standing empty in London and in some other local authority areas where indiscriminate policies are being pursued. It is estimated that there


are now several hundred such properties in London and in other authorities as a result of indiscriminate policies.
Perhaps I should make the further point that although I have no plans to meet the leader of the GLC at present, my right hon. Friend has plans in hand to meet the chairman of the housing committee of the GLC to discuss policy matters.

Mr. Heseltine: Will the Minister bear in mind that the figures that he gave to the House a few minutes ago in respect of homesteading are misleading, to the extent that 500 applications are now being processed, and this is a very different impression from the 100 completions to which he referred? When the Secretary of State meets the chairman of the housing committee, will he congratulate him on being able to achieve the sale of 1,000 council houses since the Conservatives took control of the GLC, and will he also congratulate him on reducing the figure of 1,800 squatters who were involved in GLC properties when the Conservatives took power to a figure, now, of only 450?

Mr. Freeson: I cannot comment much on the last figure because I do not know the details, except to say that I believe that a good many of the so-called squatters—as, indeed, is the case with a number of other local authorities in London—were in fact licensees, using the terms "squatter" rather incorrectly.
On the first matter, about the rate of sales, I should like to make two brief points. First, there is no cause for congratulation when indiscriminate policies are being pursued which do not take account of the kind of situation rightly raised by my hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann). Secondly, for all the talk about the "sale of the century" and—what is it?—a target of 10,000 by March 1979, which is only a few months away, I see no reason why even the GLC Tory leadership or the Opposition Front Bench should congratulate themselves on the results of their huffing and puffing during the last year or so.

Sheffield and South Yorkshire Navigation

Mr. Hardy: asked the Secretary of State for the Environment if he will now approve the proposed scheme of improve-

ment of Sheffield and South Yorkshire Navigation.

Mr. Shore: As I stated in reply to a Question by my hon. Friend on 14th June, I hope to announce my decision on this scheme shortly.

Mr. Hardy: Does my right hon. Friend accept that yet another month has passed and that this delay is now becoming a disgraceful example of insensitive hesitation? Since the environmental prospects and economic future of South Yorkshire are being treated in a quite unacceptable manner, does he understand that the patience of South Yorkshire and its hon. Members is not inexhaustible?

Mr. Shore: I do not accept from my hon. Friend that it is either disgraceful or insensitive. On the contrary, I consider it to be careful and responsible. We are hoping to come to a decision very shortly.

Mr. Durant: Does the Secretary of State accept that this is a very imaginative scheme? Surely by this time the Government should have a positive policy on this matter, which is important to the whole future of inland waterways in this country.

Mr. Shore: I am very much aware that it is a very long time indeed since there was an investment in Britain's canal system. Therefore, it is important—I attach great importance to this—that we should back a scheme which really has a reasonable chance of success.

Mr. McNamara: Will my right hon. Friend, with his usual sensitivity, examine very carefully the effects of such a development upon the ports of the Humber and, in particular, the port of Hull, and what it might mean in terms of loss of jobs and the consequent loss of use of important public investment over the years? Will he bear in mind very carefully the effects upon the development area?

Mr. Shore: In thinking through the case for such a canal scheme, we shall have to consider all the relevant factors, including the generation of new traffic and the possibility, of course, of a switch of traffic from other facilities. But all these matters—I am grateful to my hon. Friend for raising one of the many complexities—must really be thoroughly worked out.

Several Hon. Members: rose—

Mr. Speaker: I shall call one more hon. Member on this Question.

Mr. Stan Crowther: Is my right hon. Friend aware of the enormous amount of support among members of the general public for this scheme in South Yorkshire? Does he accept that we understand the difficulties that have been created by the very sharp attack made upon our right hon. Friend the Minister of State by the Select Committee? Is it not now time to let bygones be bygones and get on with the scheme, which is manifestly in the interests of the economy of South Yorkshire?

Mr. Shore: I am very much aware of the support that exists for the project in the South Yorkshire area and, indeed, more generally on the part of those who are interested in the development and better use of inland waterways. However, my hon. Friend must not assume in any way that we are bringing to bear anything other than an honest consideration of all the facts. We want to establish the best possible judgment on this project.

Water Rates

Mr. Durant: asked the Secretary of State for the Environment if he will ensure that all regional water authorities encourage their consumers to pay their water rates by monthly instalments.

The Minister of State, Department of the Environment (Mr. Denis Howell): As the hon. Member will appreciate, we have no powers to direct the water authorities in this way. However, when I met the water authority chairmen on 9th May, I urged them to accept payment by instalments where there would otherwise be hardship. I am glad to say that they assured me they are all prepared to operate such a charging policy.

Mr. Durant: When the Minister has a further meeting with the chairmen of water authorities, will he talk to them about the possibility of using the Post Office as a method of payment of water charges? This would help a number of old-age pensioners. Accepting that direct billing is a good thing, will he discuss with the chairmen the formula that they have now worked out, in which I think

the standing charge is far too high and works against the small household, the old-age pensioner and that type of person?

Mr. Howell: I have already discussed with the chairmen the question of using the Post Office. Indeed, I am glad to report that a pilot scheme along those lines by the north-west authority is working very well. I assure the hon. Member that it is being watched by the other regions, too.
I am well aware of the difficulties over direct billing to which the hon. Gentleman has drawn our attention. I am afraid that they are inherent in the Water Act 1973, which excludes the Minister from direct intervention in the method of charging used by water authorities.

Mr. Stoddart: Will my right hon. Friend take every opportunity to point out that the reorganisation of the water authorities by the Conservative Party has been one of the greatest disasters of all time? Is he aware that, as a result of the reorganisation, my constituents and many others are suffering considerable consequences in the form of higher charges and direct billing? Will he do something to ensure that these water authorities, many of which are highly inefficient, are brought under some sort of democratic control?

Mr. Howell: I shall go further than my hon. Friend in saying that the reorganisation of local government, the reorganisation of local authority health services and the reorganisation of water services, taken together, have proved to be catastrophic and an absolute disaster for the country.
Concerning the water authorities, we presented a White Paper to Parliament, and it would be our intention early in the next Parliament to produce proposals at any rate, through the National Water Authority, to get the industry back into some sort of efficiency, with some degree of national parliamentary accountability.

Mr. Alison: Presumably, however, the Minister's intention in the White Paper, and this further reorganisation that he now proposes to improve the previous reorganisation, is to produce a reduction in the rate bills. Will he undertake, therefore, that there will actually be a


reduction as a result of the further reorganisation, which was the point raised by the hon. Member for Swindon (Mr. Stoddart)? Also, in respect of the question put by my hon. Friend the Member for Reading, North (Mr. Durant), can the Minister advise us whether the instalments that he has been asking the chairmen of water authorities to introduce will be, as my hon. Friend asked, monthly instalments?

Mr. Howell: The Post Office scheme can be based on weekly payments, which I think all of us would agree would be a very good thing indeed. As the hon. Gentleman knows, the difficulty about any further reorganisation is that it is impossible to calculate its total effect, but I am quite certain that in practical terms it will produce much more efficient control of the water industry than there is at the present time.

Housing (Homeless Persons) Act

Miss Joan Lestor: asked the Secretary of State for the Environment if he is satisfied with the working of the Housing (Homeless Persons) Act; and if he will make a statement.

Mr. Freeson: The Act has helped many homeless people, and that is satisfactory. Our main guide to its detailed working is the statistical information to be published shortly and to be discussed with local authorities and voluntary bodies.

Miss Lestor: When my right hon. Friend discusses this with local authorities, will he pay particular attention to the Slough Tory authority which has by resolution decided to put as restrictive an interpretation as possible upon the Housing (Homeless Persons) Act, and has already been censured by the local ombudsman for the way in which it is failing to deal with homeless families in my area?

Mr. Freeson: I shall certainly take account of that and will take the opportunity, as soon as I can, of reading the local ombudsman's report on this matter. I am aware of the concern expressed about this local authority's conduct in certain respects. I can only hope that it will reflect further and ensure it is basing its conduct on a civilised approach to the use of the Act.

Mr. Dykes: Will the Minister also get officials in his Department to look into the quality of some of the buildings and hostels used for homeless people on temporary stay? Some of them are of a dreadfully poor quality and have a most depressing effect on the people who have to go to them.

Mr. Freeson: I certainly take note of the point, but no inspectorate system is available to us to use in such matters. If the hon. Gentleman will write to me about particular matters that he has in mind, I shall certainly consider them further.

Mr. McNamara: Is my right hon. Friend satisfied with the procedures in cases where there is a dispute between authorities over responsibility for homeless people? Is he aware that in my constituency there is one family which has now been in temporary accommodation for over 10 months because local authorities are unable to agree who is responsible for the rehousing?

Mr. Freeson: The Act has now been operating for about seven months. I am generally satisfied that the scheme that was agreed in the context of that Act, for joint arrangements between local authorities, is working reasonably well. We are due to review the matter, and if there are a sufficient number of cases of difficulty which show a common pattern, requiring further thought about the way the Act is operating, I should like to consider them. Perhaps my hon. Friend will also write to me with details so that I can take these matters into account.

Mr. Rossi: Is the Minister aware that a number of local authorities that have a relatively high proportion of employment to offer as compared with other areas, or authorities that are particularly attractive areas in which to live, are complaining that mobile homelessness is causing problems with regard to their general waiting lists? Will he consider giving a reallocation of resources to local authorities which have those problems, one of which is Slough?

Mr. Freeson: Judging from the hon. Gentleman's rather defensive observations, I am afraid that he cannot be aware of the procedure that is already adopted. The answer is that this factor


is already taken into account when we do the housing investment allocations. It is a matter for the local authority to include the data in its submission to us, against the background of whatever policy it is pursuing. We certainly take it into account.

Public Footpaths (Herefordshire)

Mr. Shepherd: asked the Secretary of State for the Environment when he expects the series of local public inquiries into the footpaths of the old county of Herefordshire will be completed.

Mr. Denis Howell: Although it has taken a long time to get the programme of inquiries under way, the Department and Hereford and Worcester county council have recently agreed on a timetable which will result in an inquiry being held every 12 weeks. Even so, with 11 inquiries to go, this means that it will be early 1981 before the exercise is complete.

Mr. Shepherd: I am grateful to the Minister for that considered reply. Is he aware that it is now over a year since the first of these local public inquiries took place, at Ross-on-Wye? Will he undertake to keep behind this programme all the way along the line so that long-standing sore points, such as the public footpath HB1, at Hampton Bishop parish, can be resolved for good and all?

Mr. Howell: This is an excellent example of the value of Questions. When I saw the hon. Gentleman's Question I asked why it was that we had not yet had the inspector's reply on Ross-on-Wye and Whitchurch. I am assured that the delay is exceptional and that we shall now get it in a matter of weeks. I assure the hon. Gentleman that I shall personally ensure that there is an immediate decision as soon as possible after that. The Hampton Bishop inquiry arises from a dispute between the parish council and the landowner concerned. I do not think that the county council or the Department come into the matter until that dispute has been resolved.

Mr. Flannery: Is my right hon. Friend aware that this problem goes much wider than Herefordshire and that, for instance, the Ramblers' Association is deeply concerned about the loss of old footpaths, many of which go out of use due to farmers putting wires across them, and so

on? Does his Department give any guidance to associations such as the Ramblers' Association on how they can best consult local authorities in order to preserve these footpaths?

Mr. Howell: I am grateful to my hon. Friend for drawing attention to this problem. In the White Paper on recreation, which we recently issued, we made it quite clear that the Government regard access to the countryside and the maintenance of rights of way on pathways as being of tremendous importance. I can assure the House that if it draws our attention to any cases of malpractice we shall look into them immediately.

Air Pollution

Mr. Forman: asked the Secretary of State for the Environment what further policy initiatives his Department proposes to take progressively to reduce the levels of air pollution in urban areas, especially London.

Mr. Denis Howell: In conjunction with the Clean Air Council, we are constantly looking at ways of progressively reducing the levels of air pollution, with the needs of urban areas particularly in mind. We are considering the proposals of the fifth report of the Royal Commission on Environmental Pollution, including those for air quality guidelines, and for new powers for local authority control of industry. A thorough review of monitoring is in hand and we have a continuing programme of research into air pollution problems.

Mr. Forman: Is the Minister aware that that answer does not go far enough in relation to this serious problem? Is his Department aware of the report from the GLC some time ago which showed that air pollution levels on many London streets are now at least double the recommended levels of the World Health Organisation? In view of the fact that the Clean Air Act 1956 covers only air pollution from fixed sources, such as factories and domestic premises, will the Minister consider legislation to see that it is extended to motor vehicles, which are the real source of the problem?

Mr. Howell: I am well aware that this problem is associated with the intake of lead into the system—

Mr. Forman: And smoke.

Mr. Howell: Yes, I know, but it also involves lead. As the hon. Gentleman will know, we have a staged programme, in partnership with the EEC, to bring down the lead content in petrol. I can tell the House that we have just agreed to finance three further research projects on atmospheric pollution, at a cost of £150,000. I assure the hon. Gentleman that we take the matter as seriously as he does. Furthermore, the Control of Pollution Act, when fully implemented, will enable local authorities to have further control of the whole range of these problems.

Mr. Hooley: I very much welcome my right hon. Friend's announcement about these new research projects and their funding, but does he agree that it is well established that the lead level in petrol is a serious air pollutant and a serious contributor to the hazards of lead poisoning? Why cannot we speed up the process of coming into line with our European neighbours, who have long accepted a lower level of lead in petrol than we are prepared to accept?

Mr. Howell: That is not quite true. We have fully accepted—this has been debated in the House—the EEC programme. I think that there have been two reductions in the content of lead in petrol during the life of this Government, and we are committed to at least one or two more, certainly to be in line with our European partners. But we cannot do it overnight. We have to serve adequate notice on industry, and there are also balance of payments considerations to be borne in mind.

Mr. Peter Walker: Is the Minister aware that in recent years the Royal Commission has not had the impact upon public opinion which perhaps it should have? Will he ask his right hon. Friend the Secretary of State, when considering the future membership of that Commission, to try to find people from outside who are good at communicating the views of the Royal Commission, instead of just experts?

Mr. Howell: I do not accept that at all. I think that the Flowers Commission has had an enormous impact on public opinion generally over a whole range of problems.

Building Industry

Mr. Neubert: asked the Secretary of State for the Environment what further discussions he proposes to have with representatives of building and construction industry employers regarding the nationalisation of the building industry.

Mr. McCrindle: asked the Secretary of State for the Environment if he has any plans to meet leaders of the building industry in the near future.

Mr. Shore: My right hon. Friend the Minister for Housing and Construction and I have regular meetings with representatives of the construction industry and I shall be seeing leaders of the organisations in the group of eight on 28th July. Since I have no proposals to nationalise the building and construction industry, I see no reason why this item should feature on our agenda.

Mr. Neubert: Can the Secretary of State explain why his hon. Friends are so upset at the prominence given by the current poster campaign about the Labour Party's plans to nationalise the building industry? As the General Election approaches, would not he and they wish for that policy to be given as much publicity as possible, including such details as the likely initial costs of up to £2¾ billion and subsequent annual costs of £½ billion—or is it that since the recent national survey has shown that four people out of five do not want any more nationalisation, the Government at least have changed their mind?

Mr. Shore: I have no comment to make on the rather extraordinary arithmetic which the hon. Member has put before the House, but, quite naturally, all responsible persons, including virtually all my right hon. and hon. Friends. deeply resent tendentious advertising in constituencies—advertising which seeks, as it were, to upset and disturb people about proposals which are certainly not in the programme of this Government and which are being discussed in the NEC of the Labour Party. If we were to retaliate in kind and take up all over the country, for example, the proposals put to the Conservative Shadow Cabinet by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), in which he


proposed the denationalisation of half a dozen of our industries, including selling off the BNOC, dismantling the NEB and turning our pits into miners' co-operatives, the Tories, too, would feel slightly upset.

Mr. McCrindle: In a genuine attempt to seek information on behalf of my constituents, may I ask the Secretary of State why, as a Socialist, he is clearly in favour of public ownership of the construction industry while as a member of the Cabinet he is either non-committal or, dare one assume, opposed to it? May I ask the right hon. Gentleman, further, whether he attended the Labour Party conference when it was decided that this should become Labour Party policy and, if so, whether on that occasion he voted for or against the proposal?

Mr. Shore: My major concern—and it is the major concern of Government supporters—is with the efficiency of the construction industry, as it is with many of our other industries. It is with the security of its employees. It is also with maintaining as high a level of employment in the industry as we possibly can. We shall always be prepared to consider measures which promote those ends. I think that that is probably sufficient answer to the hon. Member.

Mr. Heffer: Is my right hon. Friend aware that the Labour Party has never called for the nationalisation of the construction industry? The policy statement approved by the Labour Party conference called for a measure of public ownership by the establishment of a national building corporation, by the development and extension of direct labour organisations, and by the encouragement of co-operatives at the lowest level. It is an absolute lie that the Conservative Party and the employers, through their campaign CABIN, are trying to put about the country, which will in fact have a reverse effect, because the people are not stupid and will recognise when lies are being told by the Opposition.

Mr. Shore: My hon. Friend is right, of course. It is an absurd propaganda activity which is being engaged in by the Opposition. I might add to what my hon. Friend said about what was in the proposal that, as it was presented to the Labour Party conference last year, it said specifically, at the end, that

The present statement and the background document which accompanies it represent only an interim report to the party.
That is often the case. Matters are always considered seriously and thoroughly between the party and the Government.

Sir Walker-Smith: The original Question relates to employers. Can the right hon. Gentleman say whether UCATT is as yet on record in regard to this matter and, if so, to what effect?

Mr. Heffer: Yes. It supports the NEC.

Mr. Shore: I cannot deal with the right hon. and learned Gentleman's question in detail—

Mr. Heffer: I can. I am a member.

Mr. Shore: —but I know very well that the unions concerned would subscribe to my general definition of purpose in the construction industry, that we should take all measures to deal with the uncertainties of employment, that we should promote decasualisation, that we should try to maintain a more even work load, and that we should do all in our power to bring down the level of unemployment. The House may be interested and even pleased to know that this month, for the first time in two or three years, unemployment figures have fallen well below 200,000, to about 177,000.

Mr. Frank Allaun: Why should the big building employers be so upset about the proposals to permit corporation direct labour departments to tender for building contracts in neighbouring authorities? Is it the fear that this will put their own quotations in danger and also draw attention to the 133 price rings now operated by private firms in the building industry?

Mr. Shore: My hon. Friend has rightly drawn attention to what has long been the policy of this Government, which is to seek to put an end to the unnecessary restrictions placed upon direct labour organisations and also to put them upon a manifestly fair and competitive basis.

Mr. Rossi: Is the Secretary of State aware that when the hon. Member for Liverpool, Walton (Mr. Heffer) introduced the proposals contained in this document "Building Britain's Future", he spoke of the "step by step public ownership of the construction industry"? Therefore, when the Secretary of State


meets representatives of this industry, will he assure them that he would never allow these proposals to become the policy of any Government of which he was a Minister?

Mr. Shore: I thought that there was a consensus in all parts of the House that we never used the word "never". If the Opposition had used the word "never", they would have been in great difficulties when they had to nationalise Rolls-Royce and UCS a few years ago.

Land Reclamation (Birmingham)

Mr. Rooker: asked the Secretary of State for the Environment if he is satisfield with the programme for land reclamation in Birmingham.

Mr. Freeson: Since the order on 8th June specifying the Birmingham inner city area as a derelict land clearance area, the Department has asked Birmingham city and West Midlands county councils to extend their programme of sites eligible for grant. So far 18 schemes have been approved this financial year, costing £63,000.

Mr. Rooker: I thank my right hon. Friend for that answer, but does he accept that, in view of the total lack of water-based recreational activities in the north Birmingham area, the Department ought to give speedy consideration to any proposals from the West Midlands county council's planning department to convert the disused quarry at Queslett—150 acres in my constituency—for recreational purposes rather than allow it to be used as a dump for 3 million cubic yards of rubbish, and thereby use it to the public advantage?

Mr. Freeson: I well understand my hon. Friend's concern about this, and certainly the idea of the recreational facilities and plans to which he has referred sounds attractive. However, the future use of this site as part of the reclamation scheme is, in the first instance, a matter for the local authorities concerned, and we have not yet had any proposals submited to us. Naturally we shall consider them very carefully when they are received.

Mr. Eyre: Is the Minister aware that a good start has been made on this programme in Birmingham but that ultimately

the question of the ownership of land is extremely relevant? Is he aware, further, that the leader of the Birmingham city council has written in robust terms to the chairmen of nationalised industries requiring them to bring forward their land for use? This is an extremely important matter in Birmingham. Will the Minister support the leader of the council by including a letter personally to them—perhaps enclosed with the notification of their increased pay—asking them to respond vigorously in this respect?

Mr. Freeson: I am not aware of the letter to which the hon. Member referred, but I think that he has rather truncated the history of this matter. Some months ago my right hon. Friend the Secretary of State was in touch with the chairmen of all the nationalised industries about getting surplus land, especially in partnership authorities, listed and made available to local authorities as part of our efforts in the inner city programmes. When this exercise has been completed we shall consider the position with regard to the programme authorities.
Birmingham has been a subject of correspondence between myself and the leaders of the county and city councils, and also a subject for discussion in the partnership committee machinery. I hope that we will get results. I am watching certain sites very closely, and if difficulties are experienced over negotiations I will not hesitate to involve myself.

Mr. Litterick: Could the Minister tell the House the extent to which the Tory council of Birmingham has underspent the financial allocations made to it for land acquisition, while at the same time blaming the Government for the fact that areas of the city outside the centre are being deprived of resources by that council?

Mr. Freeson: That is a very wide-ranging question. The position on land acquisition for housing purposes cannot be separated from the investment programme activity of the local authority as a whole in housing generally. In 1977–78 the Birmingham city council underspent its housing investment allocation by about £5·5 million. That might not necessarily relate to land acquisition. Under the rules of procedure laid down, it is open to the council to add that figure to the 1978


allocation under what we call the 10 per cent tolerance.
On the general question of land acquisition—this is outside housing for the local authority—we have indicated to local authorities generally and to the partnership and programme authorities in particular that wherever possible they should be prepared to use CLA resources and procedures to bring land into use for commercial, industrial and environmental purposes.

Mr. Heseltine: It is now some months since the Secretary of State wrote to the chairmen of the nationalised industries about the release of land in the inner cities. What has happened in the meantime?

Mr. Freeson: We have had a good response from most of the chairmen. There is one outstanding nationalised industry which is still doing a listing of land available in these areas and is probing the possibility of negotiation on disposal of those sites. If the hon. Member writes to me or to my right hon. Friend the Secretary of State, he will be provided with more details in correspondence.

MEDICAL FACILITIES (LIVERPOOL)

Mr. Loyden: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideraation, namely,
the availability of heart investigation and surgery in Liverpool".
The Liverpool area health authority is suffering from a lack of facilities to meet the needs of patients suffering from heart complaints. Copies of press statements have been sent to you, Mr. Speaker, indicating that lack. Patients awaiting heart investigation and surgery are actually dying while they wait.
I have written to the Secretary of State, asked Questions in the House and gone through the normal channels of the House in order to bring this matter to the attention of Ministers concerned. Unfortunately, the Secretary of State has not seen fit to reply, except to say that he would write to me on some occasion. I have not received a reply.
Therefore, Mr. Speaker, I believe that you should take account of this situation in considering whether to adjourn the House and permit us to debate the matter. Recent developments indicate the importance and seriousness of the question, because an attempt has been made by the private sector of the Health Service to undermine the NHS on Merseyside by offering opportunities for patients to be removed from Liverpool to private hospitals in London where they can receive surgery that cannot be carried out on Merseyside. This is a sad reflection on the National Health Service on Merseyside.
Looking at the Government Front Bench, I think that it is a disgrace that no Minister is there to respond to the questions that are being raised about the area health authority. This is a most important matter for us all, because it involves the lives of people. Surgeons and qualified medical people in the area have made it patently clear that there is an urgent need for action.
In these circumstances, the House should adjourn to debate this matter. I am sure you will consider, Mr. Speaker, that as a Back-Bench Member I have made all the normal approaches but to no avail. No replies have been forthcoming from the Secretary of State.

Mr. Speaker: The hon. Member for Liverpool, Garston (Mr. Loyden) did me the courtesy of notifying me this morning that he would seek leave to raise a matter of specific and urgent importance under Standing Order No. 9, namely,
the availability of heart investigation and surgery in Liverpool".
He indicated also that press cuttings were available for me.
I have listened very carefully to what the hon. Member has said this afternoon and have also taken account of the exchanges in the House yesterday on this subject. I have no doubt about the seriousness of the matter.
However, the hon. Member knows that it is not for me to decide whether a serious matter is to be debated but whether there should be an emergency debate tonight or tomorrow night. I am directed to take account of all arguments and the several factors set out in the order but to give no reasons for my decision. I have to rule that the hon. Member's submission does not fall within the provision


of the Standing Order, and therefore I cannot submit his application to the House.

Mr. Parry: On a point of order, Mr. Speaker. In view of your ruling on the application of my hon. Friend the Member for Liverpool, Garston (Mr. Loyden), I feel that I should point out that I, too, have written to the Secretary of State and have tabled four Questions on the same subject. I hope that in view of my hon. Friend's complaint about lack of replies, the Secretary of State will give the full information tomorrow on what is obviously a disgraceful state of affairs of the lack of facilities for heart surgery on Merseyside.

Mr. Heffer: Further to that point of order, Mr. Speaker. As my right hon. Friend the Leader of the House is sitting in his seat, could he take account of the very important points that have been made by my hon. Friend the Member for Liverpool, Garston (Mr. Loyden) and give Government time for such a debate?

Mr. Speaker: Order. I have been very tolerant, as I always am with hon. Members who are anxious to make a point. But these are really not points of order for me.

STUDENT UNIONS (VOLUNTARY MEMBERSHIP)

3.38 p.m.

Mr. Nicholas Winterton: I beg to move,
That leave be given to bring in a Bill to make provision for the voluntary membership of student unions, student associations and student representative councils; to make consequential provisions with respect to the membership fees and charges of those bodies; and for connected purposes.
The purpose of my Bill is to increase and enhance the image and stature of all students in the United Kingdom. Many hon. Members pay lip service to young people being given genuine responsibility and independence, but when it comes to a proposal to do something definite about this, they find themselves unable to honour their principles for all sorts of extraordinary and irrelevant reasons.
At present all students at universities, polytechnics and most other institutions of higher education are compelled to join their local student unions. That is repugnant to anyone who believes in the genuine freedom of the individual. But the purpose of my Bill is not merely to moralise on the rights and wrongs of the closed shop as it affects students but to draw the attention of the House to the misuse of some of the £14 million of ratepayers' and taxpayers' money spent annually by a minority of students who manipulate and control Britain's student unions.
Every student at university must pay an annual fee of up to £50 to the university authority, which passes it on to the student union. The fees of most students who receive maintenance grants are paid by the local education authority where their parents reside. The purpose of these funds, theoretically, is to enable services, clubs and societies to provide for the students' leisure, welfare, recreational and social activities. For example, if a student plays rugby football, the rugby club should be provided with a student union grant to provide facilities for the students to play the game.
Let me examine the reality in a university with about 5,000 undergraduates. The student union receives indirectly from the taxpayer and the ratepayer 5,000 times, say, £40 a year. This money is


distributed to various clubs and societies by the vote of the student union general meeting. These meetings claim to decide what 5,000 students collectively desire, but they are usually attended, by political activists numbering no more than 150 to 200. Such student politicians rarely, in my experience, represent the silent majority of student opinion and, politically, they make certain hon. Members below the Gangway opposite appear like members of the landed gentry.
I have examined in some detail the student union budget at the University of Reading, and I thank the undergraduates at that university for supplying me with figures which would make the Chancellor of the Exchequer's eyebrows flutter with incredulity.
Is the House and the country aware that at Reading University this year, £7,705 is being given to 64 clubs and societies? Let me tell the House about some of these societies. For example, £85 of ratepayers' and taxpayers' money is being given to a society to promote homosexuality. Are there so many homosexual students at Reading University that public funds must be spent to sustain such activities? Another £200 is being paid to a group of students to allow them to play war games with toy soldiers and a further £95 has been given to GAFIA. Perhaps, Mr. Speaker, you think, as I thought, that GAFIA is a society that promotes classical learning, but you would be wrong. It is the Get Away From It All society.

Mr. Douglas Henderson: Why does the hon. Gentleman not join?

Mr. Winterton: The activities of this society, unlike my own, remain a mystery, but there is no mystery about who pays the £85 for these students to get away from it all. The taxpayer and ratepayer cannot get away from this expenditure. In addition, £95 is given to a group of stduents to keep bees. It may be milk and honey for some of the students at Reading University, but it is the taxpayer and ratepayer who get stung for the bill.
I have been in touch indirectly with the university authorities at Reading and they claim that they maintain a close control of the student union books and

say that they regard the union officers as highly responsible. The registrar said that he was satisfied with the system of student union finance at the university. That should be put on the record, because that is the view of the authorities, but I am not satisfied and nor are the taxpayers and many of the students at the university.
Hon. Members may think that Reading is not typical of all universities, so let us go to Essex, as I did on 11th May to address a public meeting. When I arrived, I was confronted with my image plastered all over the campus. Across the posters that showed photographs of me was doubed in red the word "Eliminate". That was not all. Underneath the photograph were words that I would not care to repeat, even in the House. This sort of material was provided by funds given to an organisation at the university by the National Union of Students and, therefore, came from the taxpayers and ratepayers of this country. While some are driven to do unpleasant things to prevent me from promoting my principles, I leave it to hon. Members to judge whether it is right for public funds to finance the poster that I am now holding and other similiar activities.
I have intentionally not given details of the NUS handouts of public money to guerrilla and terrorist organisations and liberation movements because that raises, perhaps, too many emotions. My Bill seeks to end the sort of abuses that I have outlined to the House, not by withdrawing or withholding funds but by adding the students' union fee to the students' maintenance grant. In this way, it will be possible for the individual student to decide how to spend the money on his or her leisure pursuits. The student will be free to join or not to join the NUS, the rugby club, the Conservative, Labour or Liberal clubs or the bee-keeping society, but no student will be compelled to pay for something that he opposes or does not support.
The House can take heart from the lead given by the Prime Minister of Australia, Mr. Malcolm Fraser, who has written to all State governments instructing them to prepare legislation to make the membership of student unions voluntary. Many hon. Members have indicated to me that they share my views on this matter and I know there are some in other parties who may join me in the Division Lobby if necessary.
It is not only the taxpayers and ratepayers who are looking to the House to take a stand on behalf of students—it is the students themselves. They are crying out for an end to the abuse of public money spent in their name. They want proper accountability and genuine democratic control. The undergraduate population of this country does not have the time or the inclination to keep a check on student unions. Undergraduates wish to pursue their studies and they have a lot of work to do. They are as anxious as we are to eliminate wastage, but they do not have the time to indulge in the intrigues of student politics which are dominated by lifelong students on sabbatical—and how sabbaticals have increased in recent years:
If we cannot trust students, who, as adults, we deem capable of electing governments or fighting for their country, to spend their union fees as they, individually, would wish, there is little hope for the future of our country, which depends on these young people.

3.48 p.m.

Mr. A. J. Beith: rose—

Mr. Speaker: Does the hon. Gentleman wish to oppose the Bill?

Mr. Beith: Yes, Mr. Speaker. I wish to oppose this Bill, which misguidedly seeks to destroy the basis on which student unions in most universities provide a wide range of facilities for students. Catering, sporting, welfare, health and academic facilities are provided by student unions, all of which are open to all students and are under the direct control of the students themselves. That, primarily, is what a student union is all about.
If the hon. Member for Macclesfield (Mr. Winterton) spent less time visiting political societies in order to make the speeches which attract the interest he described and paid a few visits instead to the more normal activities of most student unions, whether to the bar of Newcastle University students' union or the chapel of the Birmingham University students' guild, he would find the student unions to be a much more workaday affair than his colourful description suggested.
Student unions have always been based on automatic membership. In most instances fees are paid by local authorities through the grant. Even in universities where there are voluntary unions, such as the union societies of Oxford and Cambridge, the college common rooms and sports clubs claim an automatic subscription, which in most universities goes to the student union.
It would be impossible to provide facilities on the scale available in most student unions on the basis of voluntary membership suggested by the hon. Member for Macclesfield. The student turnover is too rapid to make that possible. It would not be possible to offer any reasonable security to the large numbers of staff employed by student unions to provide services. Any year-to-year planning would be impossible. In many universities charters would have to be changed, or statutes changed, to allow students to be excluded from unions of which they are automatically deemed to be members when they enrol on a course.
Universities regard student facilities as an essential part of student life. If the automatic membership system were destroyed, or had never existed, the whole matter would have to be dealt with in a different way. The same facilities would have to be provided by the universities themselves, and funded directly from public funds without any student involvement in running them. That would have been a great loss. It is far preferable that a large area of student activity is under direct student control. There are hon. Members in all parties in the House who know that such experience can be good training in responsible committee and leadership work. That element should not be left out of consideration.
The vast proportion of union expenditure gmes on welfare services, sport, cultural activities, social facilities provided by universities and on necessary equipment, staff and administration. In many universities funds for political activities are ultra vires. In universities that have such funds they represent only a tiny proportion of the whole. The expenditure that student unions channel through the NUS for representation purposes mostly finds its way into campaigns undertaken by the NUS on such issues as students' grants and the position


of overseas students. They are extremely responsibly carried out.
I hope that Conservative Front-Bench Members and Ministers will agree with me that the presentations that have been made by the NUS on behalf of student unions on grants, overseas students and the issue before us have been responsibly carried out and handled properly and sensibly.
Students determine the manner of the expenditure. It is their right to use the procedures of their unions to determine such decisions. The accounts involved are professionally audited. In many instances they go to university courts or councils, on which there are many outside representatives who may ask questions.
I was fascinated to hear some of the details of the accounts of the University of Reading. I was surprised that the hon. Gentleman did not pay more tribute to the funds that are directed by that union to pay speakers' expenses at carefully judged rates and to pay meeting room expenses for meetings of societies apart from those that he mentioned—for example, the expenses of the Anglican Society, the Catholic Society, the Change Ringers, the Methodist Society, the Scout and Guide Club and, of course, the Conservative Association, which benefits to the tune of £66.
The most curious feature of the hon. Gentleman's move is that there is a review in progress of the financing of student unions that was instituted by the Government. A discussion paper has been issued which has been the subject of comment by the NUS and other student bodies. It seems that the Bill is attempting to pre-empt that consultation and to impose an unsatisfactory method of dealing with the matter without the consultation that is already taking place. It is an extremely undesirable way in which to proceed.
The proposal is opposed by the NUS, by the Union of Liberal Students and by other student bodies, including the Federation of Conservative Students. I am in possession of a pamphlet published by none other organisation than Conservative Central Office of 32 Smith

Square. It sets out in a reasoned and careful way the disadvantages of the proposal that is being put forward. It states:
The whole issue of union financing has been marked by vagueness, prejudice and sheer ignorance of the facts.
In a kindly and helpful way it is said:
This is not the fault of any particular individual but merely the accumulation of years of reaction to extreme left-wing controlled unions by MPs and students alike, who have found it convenient to pick on one or two abuses and thus condemn the system as a whole rather than investigate the whole scene with a view to constructive criticism.
The Federation of Conservative Students comes out strongly against the hon. Gentleman's proposal. It points out that one of its effects could be to hand over some student unions directly to the extremists of the Left, which the hon. Gentleman, counterpart of them though he seems to be, is setting out to oppose. His proposal would place student unions into the hands of those who have money and their own resources or the political enthusiasm to take up voluntary membership, rather than ensuring that the union is the property of all university students.

On an issue such as this we must have the opportunity afforded by the Division, which will take place shortly, to know lust who is speaking for the Conservative Party. Is it the voice of higher education represented by the hon. Members for Ripon (Dr. Hampson) and Chelmsford (Mr. St. John-Stevas), or is it the voice of the hon. Member for Macclesfield? Is the hon. Gentleman's proposal to carry the stamp of support of Conservative Members? I expect to have the support of not only Conservative Members but those in other parts of the House in maintaining a system that has worked extremely well in universities over many years and of which I have never heard criticism from any other quarter.

Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and Nominations of Select Committees at Commencement of Public Business):—

The House divided: Ayes 79, Noes 227.

Division No. 259]
AYES
[3.55 p.m.


Atkinson, David (B'mouth, East)
Boscawen, Hon Robert
Bulmer, Esmond


Bell, Ronald
Brown, Sir Edward (Bath)
Burden, F. A.


Bennett, Sir Frederic (Torbay)
Budgen, Nick
Clark, William (Croydon S)




Cockcroft, John
Kershaw, Anthony
Ridley, Hon Nicholas


Cope,John
Kimball, Marcus
Rost, Peter (SE Derbyshire)


Dodsworth, Geoffrey
Knight, Mrs Jill
Shaw, Giles (Pudsey)


Farr, John
Lamont, Norman
Shaw, Michael (Scarborough)


Fell, Anthony
Langford-Holt, Sir John
Shepherd, Colin


Fletcher-Cooke, Charles
Lawrence, Ivan
Skeet, T. H. H.


Fox, Marcus
Lawson, Nigel
Smith, Dudley (Warwick)


Fraser, Rt Hon H. (Stafford &amp; St)
Lloyd, Ian
Spence, John


Gardiner, George (Reigate)
McCrindle, Robert
Spicer, Jim (W Dorset)


Gardner, Edward (S Fylde)
McNair-Wilson, M. (Newbury)
Spicer, Michael (S Worcester)


Gilmour, Sir John (East Fife)
Marshall, Michael (Arundel)
Stanbrook, Ivor


Glyn, Dr Alan
Marten, Neil
Tebbit, Norman


Goodhew, Victor
Maxwell-Hyslop, Robin
Temple-Morris, Peter


Gow, Ian (Eastbourne)
Mayhew, Patrick
Trotter, Neville


Griffiths, Eldon
Meyer, Sir Anthony
Walker-Smith, Rt Hon Sir Derek


Grimond, Rt Hon J.
More, Jasper (Ludlow)
Wall, Patrick


Hamilton, Archibald (Epsom &amp; Ewell)
Morgan, Geraint
Warren, Kenneth


Hamilton, Michael (Salisbury)
Morgan-Giles, Rear-Admiral
Whitney, Raymond


Harrison, Col Sir Harwood (Eye)
Nelson, Anthony
Wiggin, Jerry


Hodgson, Robin
Neubert, Michael
Younger, Hon George


Holland, Philip
Normanton, Tom



Hutchison, Michael Clark
Osborn, John
TELLERS FOR THE AYES:


Irving, Charles (Cheltenham)
Page, Rt Hon R. Graham (Crosby)
Mr. Nicholas Winterton and


Jessel, Toby
Powell, Rt Hon J. Enoch
Mr. Michael Brotherton.


Kellett-Bowman, Mrs Elaine
Renton, Rt Hon Sir D. (Hunts)



NOES


Allaun, Frank
Evans, Gwynfor (Carmarthen)
MacCormick, Iain


Archer, Rt Hon Peter
Evans, Ioan (Aberdare)
McDonald, Dr Oonagh


Ashley, Jack
Evans, John (Newton)
McElhone, Frank


Atkins, Ronald (Preston N)
Ewing, Harry (Stirling)
MacFarquhar, Roderick


Bagier, Gordon A. T.
Ewing, Mrs Winifred (Moray)
MacKenzie, Rt Hon Gregor


Bain, Mrs Margaret
Fernyhough, Rt Hon E.
Maclennan, Robert


Barnett, Rt Hon Joel (Heywood)
Fitch, Alan (Wigan)
McMillan, Tom (Glasgow C)


Bates, Alf
Flannery, Martin
Madden, Max


Beith, A. J.
Fletcher, Ted (Darlington)
Magee, Bryan


Benn, Rt Hon Anthony Wedgwood
Foot, Rt Hon Michael
Mallalieu, J. P. W.


Bidwell, Sydney
Forman, Nigel
Marshall, Dr Edmund (Goole)


Blenkinsop, Arthur
Fowler, Gerald (The Wrekin)
Marshall, Jim (Leicester S)


Booth, Rt Hon Albert
Freeson, Rt Hon Reginald
Maynard, Miss Joan


Boothroyd, Miss Betty
Garrett, John (Norwich S)
Mellish, Rt Hon Robert


Bottomley, Rt Hon Arthur
Garrett, W. E. (Wallsend)
Mikardo, Ian


Bradley, Tom
Golding, John
Millan, Rt Hon Bruce


Bray, Dr Jeremy
Gould, Bryan
Mitchell, Austin (Grimsby)


Brocklebank-Fowler, C.
Graham, Ted
Mitchell, R. C. (Soton, Itchen)


Brown, Hugh D. (Provan)
Grant, John (Islington C)
Molloy, William


Brown, Robert C. (Newcastle W)
Grocott, Bruce
Moonman, Eric


Brown, Ronald (Hackney S)
Hamilton, James (Bothwell)
Morris, Alfred (Wythenshawe)


Buchan, Norman
Hamilton, W. W. (Central Fife)
Morris, Rt Hon Charles R.


Buchanan, Richard
Hardy, Peter
Moyle, Rt Hon Roland


Callaghan, Jim (Middleton &amp; P)
Harrison, Rt Hon Walter
Newens, Stanley


Canavan, Dennis
Hart, Rt Hon Judith
Noble, Mike


Carmichael, Neil
Hattersley, Rt Hon Roy
Oakes, Gordon


Carter-Jones, Lewis
Hayman, Mrs Helene
O'Halloran, Michael


Clemitson, Ivor
Healey, Rt Hon Denis
Onslow, Cranley


Cocks, Rt Hon Michael (Bristol S)
Heffer, Eric S.
Orbach, Maurice


Cohen, Stanley
Henderson, Douglas
Orme, Rt Hon Stanley


Coleman, Donald
Horam, John
Pardoe, John


Cook, Robin F. (Edin C)
Howell, Rt Hon Denis (B'ham, Sm H)
Park, George


Cormack, Patrick
Hoyle, Doug (Nelson)
Parker, John


Cowans, Harry
Huckfield, Les
Parry, Robert


Cox, Thomas (Tooting)
Hughes, Mark (Durham)
Pavitt, Laurie


Craigen, Jim (Maryhill)
Hughes, Robert (Aberdeen N)
Pendry, Tom


Crawford, Douglas
Hunt, David (Wirral)
Perry, Ernest


Cronin, John
Hunter, Adam
Phipps, Dr Colin


Crowther, Stan (Rotherham)
Jackson, Miss Margaret (Lincoln)
Prescott, John


Cryer, Bob
Jenkins, Hugh (Putney)
Price, C. (Lewisham W)


Davidson, Arthur
John Brynmor
Price, William (Rugby)


Deakins, Eric
Johnson, Walter (Derby S)
Radice, Giles


Dean, Joseph (Leeds West)
Jones, Alec (Rhondda)
Rees, Rt Hon Merlyn (Leeds S)


de Freitas, Rt Hon Sir Geoffrey
Jones, Dan (Burnley)
Reid, George


Dempsey, James
Judd, Frank
Richardson, Miss Jo


Dewar, Donald
Kelley, Richard
Rifkind, Malcolm


Doig, Peter
Kilroy-Silk, Robert
Roberts, Albert (Normanton)


Dormand, J. D.
Knox, David
Roberts, Gwilym (Cannock)


Douglas-Mann, Bruce
Lambie, David
Robertson, George (Hamilton)


Dunn, James A.
Lamond, James
Robinson, Geoffrey


Dunnett, Jack
Latham, Arthur (Paddington)
Roderick, Caerwyn


Edge, Geoff
Lestor, Miss John (Eton &amp; Slough)
Podgers, George (Chorley)


Edwards, Robert (Wolv SE)
Lewis, Ron (Carlisle)
Rooker, J. W.


Ellis, John (Brigg &amp; Scun)
Litterick, Tom
Roper, John


Ellis, Tom (Wrexham)
Loyden, Eddie
Rose, Paul B.


English, Michael
Luard, Evan
Ryman, John


Evans, Fred (Caerphilly)
McCartney, Hugh
Sandelson, Neville







Sedgemore, Brian
Strang, Gavin
Watkinson, John


Selby, Harry
Summerskill, Hon Dr Shirley
Watt, Hamish


Sever, John
Swain, Thomas
Weetch, Ken


Shaw, Arnold (llford South)
Thomas, Dafydd (Merioneth)
Weitzman, David


Sheldon, Rt Hon Robert
Thomas, Ron (Bristol NW)
White, Frank R. (Bury)


Short, Mrs Renée (Wolv NE)
Thompson, George
Whitehead, Phillip


Silkin, Rt Hon John (Deptford)
Thorne, Stan (Preston South)
Whitlock, William


Silverman, Julius
Tierney, Sydney
Wigley, Dafydd


Silvester, Fred
Tinn, James
Willey, Rt Hon Frederick


Skinner, Dennis
Tomlinson, John
Williams, Sir Thomas (Warrington)


Smith, Rt. Hon. John (N Lanarkshire)
Torney, Tom
Wilson, Gordon (Dundee E)


Smith, Timothy John (Ashfield)
Tuck, Raphael
Wilson, William (Coventry SE)


Snape, Peter
Urwin, T. W.
Woodall, Alec


Spearing, Nigel
van Straubenzee, W. R.
Woof, Robert


Spriggs, Leslie
Varley, Rt Hon Eric G.
Wrigglesworth, Ian


Stallard, A. W.
Wainwright, Richard (Colne V)



Steel, Rt Hon David
Walker, Harold (Doncaster)



Stewart, Rt Hon Donald
Walker, Rt Hon P. (Worcester)
TELLERS FOR THE NOES:


Stewart, Rt Hon M. (Fulham)
Walker, Terry (Kingswood)
Mr. Kevin McNamara and


Stoddart, David
Watkins, David
Mr, Bryan Davies.

Question accordingly negatived.

Orders of the Day — FINANCE BILL

As amended (in the Committee and in the Standing Committee),further considered.

Clause 9

REGISTRATION

4.7 p.m.

Mr. John Cope: I beg to move amendment no. 44, in page 8, line 10, leave out "£8,500" and insert "£9,500".
This is a simple but important amendment dealing with the level above which a trader pays value added tax. This level is known as the registration level. It is the cloud base of the tax. Below it the trader is clear, but once he is above the level his operation enters the foggy regions of VAT forms, the special scheme for retailers and so forth.
In his Budget speech the Chancellor of the Exchequer said that he would raise the registration level to £10,000. The innocent bystander might have assumed that as a result of that and of the Bill which implements that promise, those traders with a turnover below £10,000 would be out of the tax and that those with a turnover over £10,000 would be in it. But that is only true for new businesses. An existing business which is already registered must remain registered unless its turnover falls below £8,500. The effective cloud base for all existing businesses is not £10,000 but £8,500.
The principle of the provision is not new. It goes back to the introduction of VAT in 1972. The limit then for new registration was £5,000 but if a trader's turnover fell below £5,000 it could not be deregistered until turnover fell below £4,250. At the beginning of the tax the effect of this provision was different. Nobody was registered before 1972 so nobody with a turnover under £5,000 needed to register.
Today every trader with a turnover of over £7,500 is registered. Those with a turnover of over £8,500 cannot deregister unless the amendment is carried. Without the amendment every trader with a turnover of over £8,500 will still be en-

meshed in the tax. The £10,000 limit will apply only to new or fast-growing companies.
My hon. Friends and I have gone some way to try to meet the Government in the hope of persuading them to accept the amendment. We propose a deregistration level of £9,500. In other words, we have proposed that the original deregistration margin should be lowered from £750, which it was originally, to £500. If unamended the Bill proposes to increase it to £1,500.
If the amendment is carried, I do not expect that a vast army of traders will deregister only to reregister again very soon on having gone over the £10,000 limit. I do not believe that there is a vast army of so-called yo-yo traders who go in and out in this way. Traders would remain registered voluntarily if they were likely soon to exceed the £10,000 limit, and they would know as well as anyone whether that would happen. It would be most helpful if the Financial Secretary could give us the numbers of traders who in the past have gone in and out again in that way. I do not believe that the number is as large as it might at first seem.
It has been increasingly realised that the so-called compliance costs of VAT—the expenses involved to the taxpayer, to the registered trader and to his customers in filling out the forms and so on—are very high, particularly for traders with a small turnover. In many such cases the compliance costs are higher than the tax collected, and great attention is being paid by the Customs and Excise and others outside to finding ways of simplifying the tax. In its wisdom the Chair did not select new clause No. 62 which I and and one of my hon. Friends tabled which would have gone a long way to simplifying the tax. That, however, is another matter which I had better not pursue too far.
Lest anyone should be concerned, I do not think that anything in the Common Market rules relating to VAT inhibits us from raising the deregistration limit, the effective cloud base of the tax, not only to £9,500, as proposed by the amendment, but to £10,000 or even more if we wished.
My hon. Friends and I, in proposing the amendment, have sought to be


reasonable. I hope that the Government will accept the amendment and that it will commend itself to the House.

Mr. Douglas Crawford: The Scottish National Party has always sought in this House to raise the basic threshold at which VAT becomes payable. When it stood at £5,000 we sought to increase it to £7,500. When it was £7,500 we sought to raise it to £10,000. Now it is £10,000 we would wish to raise it further. As usual on most matters connected with these Bills, we were opposed by the Government, and the Conservatives abstained. I am delighted that the Conservatives are apparently prepared to press this matter to a vote.
This issue concerns a vital part of industry—the small entrepreneur and trader. We have all heard horrific stories from our constituencies of chemists and other small traders burning the midnight or Sunday afternoon oil working out VAT returns. I accept the point raised by the hon. Member for Gloucestershire, South (Mr. Cope) about the number of yo-yo traders, or at least the lack of such people. I agree that they are unlikely to be a marked phenomenon.
The point here is one of principle. Perhaps the Financial Secretary will give us an indication of what the amendment would cost. I am sure that the amount would be very small. Goodness knows, the cloud base of £9,500 is low enough. We shall be happy to support the amendment.

Mr. Tony Newton: I, too, support the amendment. It is relevant to an argument that I advanced in Standing Committee on the general issue of qualification for deregistration from VAT. My hon. Friend the Member for Gloucestershire, South (Mr. Cope) has concentrated on the annual figure for deregistration—the fact that turnover has to fall to £1,500 below the £10,000 registration figure. As I explained in Standing Committee, to the surprise of some hon. Members, a more complicated situation could arise because of the difference between the annual deregistration limit of £8,500, and the quarterly deregistration limit which is £2,500—exactly a quarter of the annual registration limit.
I apologise for the complexity of the argument, but it is necessary to put these facts to show that it is possible for a trader to be for several years below the annual deregistration threshold of £8,500 but, if he has a seasonal trade, occasionally to rise above the £2,500 in one quarter. The effect of having a relatively high turnover in one quarter of the year can be to keep him permanently trapped inside the VAT system. He is below the annual deregistration limit, but because he is not consistently below the quarterly limit he is forced to remain registered.
4.15 p.m.
It may be said that my case is farfetched and that it is but a theoretical possibility. However, I have a constituent to whom this has happened. He was below the annual registration and deregistration levels. However, his trade was seasonal, and in one quarter every year he rose above the quarterly deregistration limit and he could not escape from the system. The Customs and Excise demanded substantial sums from him for payment of VAT over a number of years. His problem was ultimately resolved because the Customs and Excise adopted a reasonable attitude after I had written to it about the matter. Earlier changes in the VAT figures rescued him from his plight.
One way of dealing with this situation is to narrow the gap between the registration threshold and the deregistration threshold. My hon. Friend's amendment would help and I am glad to support it.

Mrs. Winifred Ewing: I wish to support the amendent and to associate myself with the arguments whicht have been advanced, particularly that put forward by the hon. Member for Braintree (Mr. Newton). I shall offer the Minister an example from my constituency which is similar to the horrors described by the hon. Member for Braintree. My constituent was a taxi proprietor. He was an honest man and, being uncertain whether he would exceed the £10,000 limit and not wishing to break the law, he registered. He did not achieve the amount of turnover for which he had hoped and he has since encountered difficulties. He has had to reduce his car fleet from two vehicles to one, and now he


finds that the one advantage he had anticipated of shedding the complexities of VAT will not be achieved.
It is the fair man who will be penalised. That must be a bad principle to guide the Inland Revenue. I should like some clarification. What does the Inland Revenue do to put such injustices right? Normally if tax is overpaid or underpaid in one year the matter can be adjusted in subsequent years by claims either way. Is there not some method of putting this right, or is a taxpayer to be kept in a permanent trap? It is impertinent to use the possibility of a few people being yo-yo traders as a yardstick for a section of some of the most industrious workers in society.
In Scotland, the self-employed and small business sector is vital to combat depopulation. There are six times as many small traders per head in Scotland as in England. If they go out of business in a small community, the whole community suffers. If a small shop closes, a village can die. If the garage stops selling petrol, there is no village because no one wants to live there; then there are no children, so the school closes.
All over the great valleys in my constituency I could show the Financial Secretary such villages and communities. He would be as saddened by them as I am.
As a class, these people have many penalties to bear. They are already tax collectors and form fillers for the Government. To penalise them still further will increase not only depopulation but unemployment. They are discouraged from taking on more staff if they are permanently worried about these matters. The picture is bad enough already without making it worse. I strongly urge the Minister to reconsider the plight of people such as my constituents.

Mr. Richard Page: In supporting the amendment, I think that we should initially consider it in a slightly broader context. At first sight, it does not seem overwhelmingly important, but if we consider it as a strand of the rope which ties the hands of our small and middle-sized businesses, we can see that it is vital to slacken the strand or to break it altogether.
The small and medium business, the self-employed and the professional man make a contribution to our GNP without which our economy would collapse. This sector is important, but we are not as successful here as the rest of the EEC, where smaller businesses dominate the economy and make a far greater contribution. Thus, our smaller businesses need to be encouraged and revitalised to provide the expansion of our economy and, hopefully, the future improvements of our hospitals, schools and social services which are so vital.
In that light, the amendment becomes far more important. It should be one of a series of relaxations in this area. Now that the Government are converted to the cause of smaller businesses, I hope that they will allow the necessary relaxation when it comes to the vote.
I wish that we could follow the example of the Continent and give this sector a far snappier and "with-it" title. They use the expression EMSU—the European Middle and Small Business Union. Such a name would help to bring the importance of this sector home to our people.
This sector is the only one able to provide the growth of manufacturing and services which is needed to feed our economy. For too long we have slavishly followed the cult of "big is better" instead of "small is beautiful". Nationalised industries and big companies are busily reducing staff and going briskly down the road to more and more automation. The small point raised in the amendment could help the growth of employment and productivity, and thus eventually the improvement of our social services.
It has already been said that small companies and individuals affected by the amendment are the seed corn. That is a corny expression, but we should look to this area to provide the fresh fields of activity by means of which our economy will grow.
These businesses fall effectively into two groups. The first is the small corner shop run by a widow to augment her pension or by one partner while the other goes out to work. The second group comprises the self-employed man charging directly for his labour or someone struggling to launch his own business.
It is unlikely that we shall see vast employment prospects in the case of the small shop, and here I support the amendment purely on grounds of economy. In the extreme case of £10,000 turnover, assuming a gross profit of 30 per cent., the difference in VAT amounts to tax on the difference between £1,000 and £700. Bluntly, it is not worth the midnight oil for the trader or the VAT inspector's time calling once a quarter to pick up about £25 a month. In that light, is it worth all this trouble about registration or deregistration? We must be far more liberal and lax in this matter. In those figures, I have not taken into account the fact that most corner shops sell many zero-rated items.
We must give the second group—the self-employed and the small business man struggling to start—every encouragement, opportunity and hope. We must remove these obstacles. It is not worth making people fiddle around with a few pounds VAT late at night if it is prejudicing the country's future. We should let the tree grow before we start picking the fruit. I hope that the amendment will help this sector to grow.

Mr. David Price: I support everything said by my hon. Friends and by the two Scottish National Party members. It is clear to all of us that even now the VAT threshold is too low. The public are ant to forget that the threshold relates not to profitability or to personal income but to turnover. Average male industrial earnings are £80 a week or £4,000 a year. If one makes a net profit on turnover of 10 per cent., one needs about £40,000 turnover to get the same personal income. That is worth remembering.
Secondly, the sheer cost of administration of small taxpayers is not worth the candle. This effect goes all through our affairs. If the Government are serious about trying to reduce bureaucracy, they must be generous on the margin of taxation.
Thirdly, the other aspect of the same coin is the de minimis rule. The sheer cost of administering the bottom of the pyramid is vast compared with the amount of revenue involved.
Finally, there is the amount of "aggro" that this causes among people who have

the greatest difficulty in coping with the complexity of VAT anyway.
These are entirely convincing reasons for the Government to relent. The amendment would not give much away. It would merely raise the deregistration point to nearly the same as the threshold. It seems a modest concession and I can see that the Financial Secretary is about to accept it.

The Financial Secretary to the Treasury (Mr. Robert Sheldon): We have had a useful debate, but many of the points made—valid though they are so far as they relate to hon. Members' knowledge of their constituents—have been concerned with the registration limit, which is not before us today. That limit has been raised in this Finance Bill to practically the highest level permitted under the Community rules.
Hon. Members have been mainly concerned about the gap between the level for registration and the level for deregistration. We have substantially increased the registration limit from £7,500 to £10,000 and the deregistration limit rather more, proportionately, from £6,000 to £8,500. Our reasons for doing so are largely the reasons that hon. Members have given.
The hon. Member for Gloucestershire, South (Mr. Cope), in a reasonable and useful contribution, put a point that I should like to emphasise. I believe that as people learn to understand VAT, its terrors will diminish. Some people wish rightly to deregister and we want them to do so, but for others it would be wrong to deregister because there are certain advantages for some people in staying registered.
4.30 p.m.
The obvious advantage of registration is in respect of sales to other companies and individuals who are registered for tax and who can receive allowable inputs in respect of purchases from registered traders but cannot do so in respect of unregistered traders. This is slowly becoming more widely understood.
We have seen this understanding growing in the reception given to recent changes. In October 1977, as a result of raising the registration and deregistration limits, 43,000 traders were able to derigister. Out of that figure, only 9,000


actually derigistered. As a result of the provisions of this Bill, 90,000 will be able to derigister, if they wish, and we expect that about 13,000 out of that figure are likely to derigister. This is an indication that the desire to derigister is nothing like as great as it was when the tax was introduced.

Mr. Nigel Lawson: The Minister mentioned a figure of 90,000 as being entitled to derigister. As I understand it, that is on the basis of the £8,500 derigistration limit. If this amendment were to be agreed and the deregistration limit were to be raised to £9,500, how many more would be entitled to deregister?

Mr. Sheldon: These are only rough estimates and I do not wish to be held to them precisely. However, the figures could amount to 20,000 more deregistrations, out of a total of 1,400,000 trades registered for VAT.
The hon. Member for Perth and East Perthshire (Mr. Crawford) said that a number of people were burning the midnight oil working out their VAT. Naturally, there will always be some people who are in the early stages of their business, so the hon. Gentleman made a valid point, but the simplifications which have been introduced, particularly the latest, will reduce these administrative difficulties and increase comprehension. I see this as essentially a declining problem, although it will remain with us.
Let me give a little of the background. In 1972 the deregistration limit was fixed at 20 per cent. lower than the registration limit. That proportion was maintained up to the publication of this Bill. In this Bill we increased the deregistration limit proportionally more, so that it is only 15 per cent. lower than the registration limit. That means that we have narrowed the gap in proportional terms. The reasons why have alreardy been adduced in this debate.

Mr. Cope: The Minister is correct to say that the gap in proportional terms has been narrowed, but has been vastly increased in financial terms. In cash terms it has been doubled since 1972.

Mr. Sheldon: That argument would not commend itself to the hon. Member for Blaby (Mr. Lawson). In indexation terms it is probably best to talk in percentages so that we can obtain a more

direct comparison. In real money terms, as well as in percentage terms the gap has been narrowed. The deregistration limit gives an option to certain traders. Some may wish to deregister, and some may have the fears expressed by the hon. Member for Moray and Nairn (Mrs. Ewing) who referred to the yo-yo traders who go in and out of VAT registration. But there are problems involved in narrowing the gap. As one increases the deregistration limit, there will be people who feel that it is an advantage to deregister but who subsequently find they have to come into registration.

Mr. John Pardoe: The argument is not about the gap, but whether there needs to be a gap and whether the arguments for the gap are valid. It may be that they were valid in 1972, but are they still valid today? Since the Minister made such a point about the fact that so few of those who can go in and out actually do so and the fact that they stay in and register, is it not likely that few traders will go in and out even if there is no gap at all? What estimate has he made to that end?

Mr. Sheldon: I shall be coming to that point. I agree with many of the hon. Member's comments. Our assessment is that under the arrangements we have proposed, about 10 per cent. of all traders who are able to deregister will reregister at a subsequent date. Therefore, 10 per cent. of those traders will be bridging that gap. The purposes of the gap is to prevent large numbers of traders going in and out of registration. The larger the gap the more one stops people going in and out. On the other hand, the smaller the gap the more one allows people to deregister.
Therefore, we have a compromise between the desire for a big gap to avoid people coming in and out of VAT liability and the desire for a small gap in order to get as many people as wish to do so to deregister. If people are uncertain whether to deregister, I would point out that some people have deregistered and have subsequently found that they should not have taken that step. That produces more problems for them and for their advisers.
There are benefits of registration which are becoming more widely understood. As people become accustomed to VAT,


and as these benefits are understood, I believe that it may be right to move in the direction of the hon. Member for Cornwall, North (Mr. Pardoe) so that the gap grows narrower and narrower and may even be extinguished. By making a first step towards narrowing the gap and towards its eventual possible extinction, we have made a useful move. I believe that it should stand.

Mr. Lawson: We have had a useful and brief debate. It is a debate about the very smallest business men of all. We are referring to one-man business—the single trader. The fact that they are in that category entitles them to no less care and attention from the House of Commons than we give to any other category of business man. Therefore, it was encouraging that my hon. Friends the Members for Gloucestershire, South (Mr. Cope), Braintree (Mr. Newton), Workington (Mr. Page) and Eastleigh (Mr. Price), and no fewer than two Members of the SNP, took part in this debate.
The Minister made a curious statement in his closing comments. He said that we should move in the direction of narrowing the gap further, and possibly eliminating it altogether. But we have already had put before us an amendment which will have that precise effect. It will narrow the gap betwen the threshold of registration and the deregistration figure from £1,500 to £500. Instead of accepting it, the Minister apparently is not prepared to do so.
That is very surprising. I suspect that the yo-yo trader is a largely mythical beast. The trader who is always popping in and out of registration, because his turnover is oscillating around the £10,000 figure as it now is, is an unlikely figure. It is too much trouble for him; it is not worth his while. After all, he is not forced to deregister. If he thinks that he will come back into registration, he will not go through the palaver and bother of deregistering.
The Minister said that studies showed that 10 per cent. of people might deregister and then reregister, but that does not tell us about the number who do that. I think that the numbers will be very few.
Whereas this is something mythical, what is real is the trap mentioned by my hon. Friend the Member for Brain-

tree and the hon. Member for Moray and Nairn. People are caught in this trap. The raising of the deregistration figure is the simplest way of avoiding that trap. Having got below the registration figure people are compelled to remain registered because the quarterly requirement is too high to enable them to deregister.
I think that it is worth mentioning the history of this matter. The Conservative Opposition moved a new clause last year to raise the threshold of registration for value added tax to £10,000. Unfortunately, that was not accepted by the Government. Indeed, it was defeated because on that occasion the Liberal Party insisted that the threshold should be £7,500, not £10,000. Because the Liberal Party was not prepared to support the £10,000 threshold, the small business sector was forced to wait until this year before the Government—they often pick up our ideas a year later, but this time they will not have the opportunity to do so because they will not be in office—emerged with the £10,000 threshold.

Mr. Pardoe: At no point in any of his speeches on this matter have I ever heard the hon. Gentleman ask how many extra bureaucrats would have had to be hired last year to raise the threshold to £10,000. Since I was given that specific reason, I settled for £7,500 and did so in two steps. Is the hon. Gentleman interested in reducing or increasing the numbers of bureaucrats?

Mr. Lawson: Perhaps the hon. Member for Cornwall, North (Mr. Pardoe) will explain—preferably on some other occasion—why the numbers of bureaucrats required for the £10,000 threshold one year should be different from the numbers required for the £10,000 threshold the next year. The truth is that the more people who are out of VAT, the fewer bureaucrats are needed and the smaller the compliance costs. If fewer traders are registered for VAT, clearly we need fewer people to collect the VAT from those traders. I should have thought that was clear, even to the hon. Member for Cornwall, North.
Presumably the Government—a year late, as I said—decided to raise the VAT registration threshold to £10,000 because they wanted fewer people registered. The Government said that they wanted to go as far as they could, consistent with the


sixth directive of the European Community. Yet here is an opportunity, by accepting the amendment, for another 20,000 traders to be deregistered—that was the Financial Secretary's figure—and that is wholly within the terms of the sixth directive. There is nothing in the sixth directive which would prevent the Government from doing that. Yet they have decided not to do it.

I believe that the Financial Secretary's argument was wholly inadequate. Indeed, it was largely self-contradictory. Therefore I hope that my hon. Friend the Member for Gloucestershire, South will press the amendment to a Division.

Question put, That the amendment be made:—

The House divided: Ayes 248, Noes 255.

Division No. 260]
AYES
[4.46 p.m.


Adley, Robert
Fletcher, Alex (Edinburgh N)
Loveridge, John


Alison, Michael
Fletcher-Cooke, Charles
Luce, Richard


Amery, Rt Hon Julian
Forman, Nigel
McAdden, Sir Stephen


Arnold, Tom
Fraser, Rt Hon H. (Stafford &amp; St)
MacCormick, Iain


Atkins, Rt Hon H. (Spelthorne)
Galbraith Hon T. G. D.
McCrindle, Robert


Atkinson, David (B'mouth, East)
Gardiner, George (Reigate)
Macfarlane, Neil


Awdry, Daniel
Gardner, Edward (S Fylde)
MacGregor, John


Bain, Mrs Margaret
Gilmour, Rt Hon Sir Ian (Chesham)
MacKay, Andrew (Stechford)


Baker, Kenneth
Gilmour, Sir John (East Fife)
Macmillan, Rt Hon M. (Farnham)


Banks, Robert
Glyn, Dr Alan
McNair-Wilson, M. (Newbury)


Bell, Ronald
Godber, Rt Hon Joseph
McNair-Wilson, P. (New Forest)


Bennett, Sir Frederic (Torbay)
Goodhart, Philip
Madel, David


Bennett, Dr Reginald (Fareham)
Goodlad, Alastair
Marshall, Michael (Arundel)


Benyon, W.
Gorst, John
Marten, Neil


Berry, Hon Anthony
Gow, Ian (Eastbourne)
Maude, Angus


Biffen, John
Gower, Sir Raymond (Barry)
Maudling, Rt Hon Reginald


Biggs-Davison, John
Grant, Anthony (Harrow C)
Maxwell-Hyslop, Robin


Blaker, Peter
Gray, Hamish
Mayhew, Patrick


Body, Richard
Grieve, Percy
Meyer, Sir Anthony


Boscawen, Hon Robert
Griffiths, Eldon
Miller, Hal (Bromsgrove)


Bottomley, Peter
Grylls, Michael
Mills, Peter


Bowden, A. (Brighton, Kemptown)
Hall-Davis, A. G. F
Mitchell, David (Basingstoke)


Braine, Sir Bernard
Hamilton, Archibald (Epsom &amp; Ewell)
Moate Roger


Brittan, Leon
Hamilton, Michael (Salisbury)
Monro, Hector


Brocklebank-Fowler, C.
Hampson, Dr Keith
Moore, John (Croydon C)


Brooke, Hon Peter
Hannam,John
More, Jasper (Ludlow)


Brotherton, Michael
Harrison, Col Sir Harwood (Eye)
Morgan Geraint


Brown, Sir Edward (Bath)
Harvie Anderson, Rt Hon Miss



Bryan, Sir Paul
Haselhurst, Alan
Morgan-Giles, Rear-Admiral


Buchanan-Smith, Alick
Hastings, Stephen
Morris, Michael (Northampton S)


Buck, Antony
Havers, Rt Hon Sir Michael
Morrison, Charles (Devizes)


Budgen, Nick
Hawkins, Paul
Morrison, Hon Peter (Chester)


Bulmer, Esmond
Hayhoe, Barney
Neave, Airey


Butler, Adam (Bosworth)
Henderson, Douglas
Nelson, Anthony


Chalker, Mrs Lynda
Hicks, Robert
Neubert, Michael


Channon, Paul
Higgins, Terence L.
Newton, Tony


Churchill, W. S.
Hodgson, Robin
Normanton, Tom


Clark, William (Croydon S)
Holland, Philip
Nott, John


Clarke, Kenneth (Rushcliffe)
Hordern. Peter
Onslow, Cranley


Cockcroft, John
Howe, Rt Hon Sir Geoffrey
Oppenheim, Mrs Sally


Cooke, Robert (Bristol W)
Howell, David (Guildford)
Osborn, John


Cope, John
Howell, Ralph (North Norfolk)
Page, John (Harrow West)


Cormack, Patrick
Hunt, David (Wirral)
Page, Rt Hon R. Graham (Crosby)


Corrie, John
Hunt, John (Ravensbourne)
Page, Richard (Workington)


Costain, A. P.
Hurd, Douglas
Parkinson, Cecil


Crawford, Douglas
Hutchison, Michael Clark
Percival, Ian


Crouch, David
Irving, Charles (Cheltenham)
Peyton, Rt Hon John


Davies, Rt Hon J. (Knutsford)
James, David
Pink, R. Bonner


Dean, Paul (N Somerset)
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Powell, Rt Hon J. Enoch


Dodsworth, Geoffrey
Jessel, Toby
Prentice, Rt Hon Reg


Douglas-Hamilton, Lord James
Jones, Arthur (Daventry)
Price, David (Eastleigh)


Drayson, Burnaby
Jopling, Michael
Pym, Rt Hon Francis


du Cann, Rt Hon Edward
Joseph, Rt Hon Sir Keith
Raison, Timothy


Durant, Tony
Kaberry, Sir Donald
Rathbone, Tim


Eden, Rt Hon Sir John
Kellett-Bowman, Mrs Elaine
Rees, Peter (Dover &amp; Deal)


Edwards, Nicholas (Pembroke)
Kershaw, Anthony
Reid, George


Elliott, Sir William
Kimball, Marcus
Renton, Rt Hon Sir D. (Hunts)


Evans, Gwynfor (Carmarthen)
King, Tom (Bridgwater)
Renton, Tim (Mid-Sussex)


Ewing, Mrs Winifred (Moray)
Knight, Mrs Jill
Rhodes James, R.


Eyre, Reginald
Knox, David
Rhys Williams, Sir Brandon


Fairbairn, Nicholas
Lamont, Norman
Ridley, Hon Nicholas


Fairgrieve, Russell
Lawrence, Ivan
Ridsdale, Julian


Farr, John
Lawson, Nigel
Rifkind, Malcolm


Fell, Anthony
Lester, Jim (Beeston)
Roberts, Wyn (Conway)


Finsberg, Geoffrey
Lewis, Kenneth (Rutland)
Rossi, Hugh (Hornsey)


Fisher, Sir Nigel
Lloyd, Ian
Rost, Peter (SE Derbyshire)




Sainsbury, Tim
Stanbrook, Ivor
Walker-Smith, Rt Hon Sir Derek


St. John-Stevas, Norman
Stanley, John
Wall, Patrick


Scott, Nicholas
Steen, Anthony (Wavertree)
Walters, Dennis


Scott-Hopkins, James
Stewart, Rt Hon Donald
Warren, Kenneth


Shaw, Giles (Pudsey)
Stewart, Ian (Hitchin)
Watt, Hamish


Shaw, Michael (Scarborough)
Stradling Thomas, J.
Weatherill, Bernard


Shelton, William (Streatham)
Tapsell, Peter
Wells, John


Shepherd, Colin
Taylor, Teddy (Cathcart)
Whitelaw, Rt Hon William


Shersby, Michael
Tebbit, Norman
Whitney, Raymond


Silvester, Fred
Thomas, Dafydd (Merioneth)
Wiggin, Jerry


Sims, Roger
Thomas, Rt Hon P. (Hendon S)
Wigley, Dafydd


Sinclair, Sir George
Townsend, Cyril D.
Wilson, Gordon (Dundee E)


Skeet, T. H. H.
Trotter, Neville
Winterton, Nicholas


Smith, Timothy John (Ashfield)
Vaughan, Dr Gerard
Wood, Rt Hon Richard


Spence, John
Viggers, Peter
Younger, Hon George


Spicer, Jim (W Dorset)
Wakeham, John



Spicer, Michael (S Worcester)
Walder, David (Clitheroe)
TELLERS FOR THE AYES:


Sproat, Iain
Walker, Rt Hon P. (Worcester)
Mr. Spencer Le Marchant and




Sir George Young.


NOES


Abse, Leo
Dormand, J. D.
Judd, Frank


Allaun, Frank
Douglas-Mann, Bruce
Kaufman, Rt Hon Gerald


Anderson, Donald
Duffy, A. E. P.
Kelley, Richard


Archer, Rt Hon Peter
Dunn, James A.
Kerr, Russell


Armstrong, Ernest
Dunnett, Jack
Kilroy-Silk, Robert


Ashley, Jack
Dunwoody, Mrs Gwyneth
Kinnock, Neil


Ashton, Joe
Eadie, Alex
Lambie, David


Atkins, Ronald (Preston N)
Edge, Geoff
Lamond, James


Atkinson, Norman (H'gey, Tott'ham)
Edwards, Robert (Wolv SE)
Latham, Arthur (Paddington)


Bagier, Gordon A. T.
Ellis, John (Brigg &amp; Scun)
Leadbitter, Ted


Barnett, Guy (Greenwich)
English, Michael
Lestor, Miss Joan (Eton &amp; Slough)


Barnett, Rt Hon Joel (Heywood)
Evans, Fred (Caerphilly)
Lever, Rt Hon Harold


Bates, Alf
Evans, Ioan (Aberdare)
Lewis, Ron (Carlisle)


Bean, R. E.
Evans, John (Newton)
Litterick, Tom


Benn, Rt Hon Anthony Wedgwood
Ewing, Harry (Stirling)
Loyden, Eddie


Bidwell, Sydney
Faulds, Andrew
Mabon, Rt Hon Dr J. Dickson


Bishop, Rt Hon Edward
Fernyhough, Rt Hon E.
McCartney, Hugh


Blenkinsop, Arthur
Fitch, Alan (Wigan)
McDonald, Dr Oonagh


Booth, Rt Hon Albert
Flannery, Martin
McElhone, Frank


Boothroyd, Miss Betty
Fletcher, Ted (Darlington)
MacFarquhar, Roderick


Bottomley, Rt Hon Arthur
Foot, Rt Hon Michael
McGuire, Michael (Ince)


Boyden, James (Bish Auck)
Ford, Ben
MacKenzie, Rt Hon Gregor


Bradley, Tom
Fraser, John (Lambeth, N'w'd)
Maclennan, Robert


Bray, Dr Jeremy
Freeson, Rt Hon Reginald
McNamara, Kevin


Brown, Hugh D. (Provan)
Garrett, John (Norwich S)
Madden, Max


Brown, Robert C. (Newcastle W)
Garrett, W. E. (Wallsend)
Magee, Bryan


Brown, Ronald (Hackney S)
George, Bruce
Mallalieu, J. P. W.


Buchan, Norman
Ginsburg, David
Marshall, Dr Edmund (Goole)


Buchanan, Richard
Golding, John
Marshall, Jim (Leicester S)


Callaghan, Jim (Middleton &amp; P)
Gould, Bryan
Maynard, Miss Joan


Campbell, Ian
Gourlay, Harry
Meacher, Michael


Canavan, Dennis
Grant, John (Islington C)
Mellish, Rt Hon Robert


Carmichael, Neil
Grocott, Bruce
Mikardo, Ian


Carter-Jones, Lewis
Hamilton, James (Bothwell)
Millan, Rt Hon Bruce


Cartwright, John
Hamilton, W. W. (Central Fife)
Miller, Dr M. S. (E Kilbride)


Clemitson, Ivor
Hardy, Peter
Mitchell, Austin (Grimsby)


Cocks, Rt Hon Michael (Bristol S)
Harrison, Rt Hon Walter
Mitchell, R. C. (Soton, Itchen)


Cohen, Stanley
Hart, Rt Hon Judith
Molloy, William


Coleman, Donald
Hattersley, Rt Hon Roy
Moonman, Eric


Cook, Robin F. (Edin C)
Hayman, Mrs Helene
Morris, Alfred (Wythenshawe)


Corbett, Robin
Healey, Rt Hon Denis
Morris, Rt Hon Charles R.


Cowans, Harry
Heffer, Eric S.
Morris, Rt Hon J. (Aberavon)


Cox, Thomas (Tooting)
Hooley, Frank
Moyle, Rt Hon Roland


Craigen, Jim (Maryhill)
Horam, John
Newens, Stanley


Crawshaw, Richard
Howell, Rt Hon Denis (B'ham, Sm H)
Noble, Mike


Cronin, John
Hoyle, Doug (Nelson)
Oakes, Gordon


Cryer, Bob
Huckfield, Les
Ogden, Eric


Cunningham, G. (Islington S)
Hughes, Mark (Durham)
O'Halloran, Michael


Cunningham, Dr J. (Whiteh)
Hughes, Robert (Aberdeen N)
Orbach, Maurice


Dalyell, Tam
Hughes, Roy (Newport)
Orme, Rt Hon Stanley


Davidson, Arthur
Hunter, Adam
Owen, Rt Hon Dr David


Davies, Bryan (Enfield N)
Irvine, Rt Hon Sir A. (Edge Hill)
Padley, Walter


Davies, Rt Hon Denzil
Irving, Rt Hon S. (Dartford)
Palmer, Arthur


Davies, Ifor (Gower)
Jackson, Miss Margaret (Lincoln)
Park, George


Davis, Clinton (Hackney C)
Jay, Rt Hon Douglas
Parker, John


Deakins, Eric
Jeger, Mrs Lena
Parry, Robert


Dean, Joseph (Leeds West)
Jenkins, Hugh (Putney)
Pavitt, Laurie


de Freitas, Rt Hon Sir Geoffrey
John Brynmor
Pendry, Tom


Dell, Rt Hon Edmund
Johnson, James (Hull West)
Perry, Ernest


Dempsey, James
Johnson, Walter (Derby S)
Phipps, Dr Colin


Dewar, Donald
Jones, Alec (Rhondda)
Prescott, John


Doig, Peter
Jones, Dan (Burnley)
Price, C. (Lewisham W)







Price, William (Rugby)
Silkin, Rt Hon John (Deptford)
Urwin, T. W.


Radice, Giles
Silverman, Julius
Varley, Rt Hon Eric G.


Rees, Rt Hon Merlyn (Leeds S)
Skinner, Dennis
Walker, Harold (Doncaster)


Richardson, Miss Jo
Smith, Rt. Hon. John (N Lanarkshire)
Walker, Terry (Kingswood)


Roberts, Albert (Normanton)
Snape, Peter
Watkins, David


Roberts, Gwilym (Cannock)
Spearing, Nigel
Watkinson, John


Robertson, George (Hamilton)
Spriggs, Leslie
Weetch, Ken


Robinson, Geoffrey
Stallard, A. W.
Weitzman, David


Roderick, Caerwyn
Stewart, Rt Hon M. (Fulham)
White, Frank R. (Bury)


Rodgers, George (Chorley)
Stoddart, David
White, James (Pollok)


Rodgers, Rt Hon William (Stockton)
Strang, Gavin
Whitehead, Phillip


Rooker, J. W.
Summerskill, Hon Dr Shirley
Whitlock, William


Roper, John
Swain, Thomas
Willey, Rt Hon Frederick


Rose, Paul B.
Taylor, Mrs Ann (Bolton W)
Williams, Rt Hon Alan (Swansea W)


Ross, Rt Hon W. (Kilmarnock)
Thomas, Jeffrey (Abertillery)
Williams, Sir Thomas (Warrington)


Rowlands, Ted
Thomas, Mike (Newcastle E)
Wilson, William (Coventry SE)


Ryman, John
Thomas, Ron (Bristol NW)
Wise, Mrs Audrey


Sandelson, Neville
Thorne, Stan (Preston South)
Woof, Robert


Sedgemore, Brian
Tierney, Sydney
Wrigglesworth, Ian


Selby, Harry
Tilley, John
Young, David (Bolton E)


Sever, John
Tomlinson, John



Shaw. Arnold (llford South)
Tomney, Frank
TELLERS FOR THE NOES:


Sheldon, Rt Hon Robert
Torney, Tom
Mr. Ted Graham and


Shore, Rt Hon Peter
Tuck, Raphael
Mr. James Tinn.


Short, Mrs Renée (Wolv NE)

Question accordingly negatived.

Mr. Robert Sheldon: I beg to move Amendment No. 3, in page 8, line 20, at end insert:
'(4) In paragraph 11 of that Schedule (discretionary registration) the existing provisions shall become sub-paragraph (1) and after those provisions there shall be inserted—
(2) Where the Commissioners refuse to act or to continue to act on a request made by a person under sub-paragraph (1)(b) above, they shall give him written notice of their decision and of the grounds on which it was made.";
and in section 40(1) of the said Act of 1972 (appeals) after paragraph (g) there shall be inserted—
(gg) any refusal to act or to continue to act on a request under paragraph 11(1)(b) of Schedule 1 to this Act;".'.
The object of the amendment is, first, to require the Commissioners of Customs and Excise, if they refuse a request for voluntary registration to a VAT trader, to

give the reasons for their refusal in writing, and, secondly, to make the refusal appealable to a VAT tribunal.
The amendment serves to make clear both that a decision will be given in writing and that there is a right of appeal to a VAT tribunal. This meets the undertaking I gave the hon. Member for Gloucestershire, South (Mr. Cope) in the Standing Committee debate.

Mr. Lawson: It is regrettable that the last Division was lost as a result of the Liberals' abstention, but at least we welcome the honouring of the undertaking the Financial Secretary gave upstairs in Committee in reply to my hon. Friend the Member for Gloucestershire, South (Mr. Cope). We welcome the amendment.

Amendment agreed to.

Clause 10

BAD DEBT RELIEF

5.0 p.m.

Mr. Ian Stewart: I beg to move amendment no. 112, in page 8, line 31, after 'and', insert 'either'.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine): With this we may take the following amendments:
No. 171, in page 8, line 33, leave out become insolvent' and insert 'defaulted in payment thereof'.
No. 113, in line 33, after 'insolvent', insert:
';or
(c)(i) in the case of a company, a receiver has been appointed under the express power contained in debentures or a trust deed or by court; or
(ii) in the case of an individual or body corporate, the person liable to pay the outstanding amount has entered into an arrangement with his creditors.'
No. 45, in line 40, at end insert:
'(a) the Inland Revenue have agreed that the outstanding amount is irrecoverable for income tax or corporation tax purposes; or'.
No. 46, in line 40, at end insert:
'(a) the outstanding amount is less than £1,000 and has been agreed by the Inland Revenue for the purposes of income tax or corporation tax as irrecoverable; or'.
No. 172, in line 41, leave out paragraph (a) and insert:
'(a) he has obtained judgment for the outstanding amount and satisfies the Commissioners that he has taken all reasonable steps to recover the amount but has not recovered it.'.
No. 114, in line 41 after '(a)' insert
'in the circumstances in subsection 1 (b) of this section.'
No. 115, in line 43 at end insert'
'or
(aa) in the circumstances in subsection 1(c) of this section, he has provided proof to the Commissioners that a receiver has been appointed or sufficient details of the arrangement to show that he is unlikely to receive the outstanding amount within two years.'.
No. 173, in page 9, line 25 leave out subsection (4).
No. 47, in line 41 at end insert
'or a receiver is appointed'.

No. 174, in page 10, line 5 leave out subsection (6).
No. 116, in line 6, at end insert
'or in the circumstances in 1(c)of this section a receiver is appointed or an arrangement made'
No. 117, in line 7, at end add—
'(7) Where a claim has been made under this section and the Commissioners have made a refund of tax and subsequently the claimant receives money or moneys' worth from the person liable to pay for the goods or services, the claimant shall be deemed to make a taxable supply at that time equal to the amount received less the value added tax that would be payable on such taxable supply.'.

Mr. Stewart: Clause 10, to which this amendment and the other amendments in the group refer, provides relief for VAT on bad debts, but in a rather limited way. It is limited to cases of formal insolvency. This has raised the possibility that there may be some very unfortunate side effects because of the incentive to creditors to put companies into liquidation.
The purpose of the six amendments, nos. 112–117, is to provide for an alternative to formal insolvency, in the shape of receivership or arrangements with creditors. These are very technical matters, and therefore I will, if I may, say a word or two about their effect.
The amendments are intended to widen the provisions of the clause so that the regulations apply to a second class of persons, other than when the debtor is in formal insolvency, this new class being those in the hands of a receiver or where an arrangement has been made.
To do this, it is necessary to introduce a paving amendment, no. 112, at the end of subsection (1)(a), to insert the word "either". This has the effect that if the circumstances in paragraph (a) apply, and either those in paragraph (b), where a person is insolvent, or in the new paragraph (c), provided by amendment no. 113, then relief can be given.
Similarly, in subsection (2), it is necessary to provide that in addition to a person proving an insolvency, allowance is made for the situation in which receivership or a deed of arrangement occurs.
Amendment no. 114 limits the matter to cases where a person is insolvent. Amendment no. 115 introduces, at the bottom of page 8, a paragraph to deal with the receivership point. The circumstances in paragraphs (b) and (c) at the


top of page 9 would then apply whether insolvency or receivership had occurred.
On page 10, subsection (6) as it stands can apply only where insolvency occurs, and therefore it is necessary to insert further words to deal with the receivership or arrangement. That is covered by amendment no. 116.
Finally, amendment no. 117 seeks to introduce a new subsection on page 10 to provide that where a claim has been made but a person subsequently recovers money, he pays part of that to Customs and Excise in the form of VAT, and in determining the rate of VAT he would be treated as making a "taxable supply" at the time when he receives the amount. Since the rate of value added tax could be different at that time from the time when the debt was originally incurred, it could be argued that the Government would lose money if that provision were not inserted.
I apologise for that rather technical introduction, but underlying this there is a very important general point. As I have said, limiting to insolvency the circumstances when VAT on bad debts can be relieved appears to us to be too narrow. In Committee, Conservative Members proposed a number of alternatives which would have widened the scope, either to make any debt which was allowable for income tax also allowable for this purpose, or where a debt was irrecoverable to the satisfaction of the Customs and Excise. Another proposal concerned the position where judgment had been entered for a debt and six months had elapsed without its being recovered. A further possibility was where the conditions for insolvency existed but a petition had not actually been presented.
These were all ways of trying to get round a point which clause 10 insists upon, that is, that for bad debt relief to be obtainable, the company should be put into liquidation. This, as many have pointed out, is naturally an incentive to creditors to pursue debtor companies into liquidation. It was objected that perhaps 8 per cent. VAT is not a very great incentive to put a company into liquidation, but very often a company in difficulties may have one very substantial creditor. This is particularly the case with small companies which supply to perhaps one major firm. Even

though their overall operations may not be very large, they could easily have debts running into tens of thousands of pounds, therefore 8 per cent. of that might be better than recovering nothing, if this course were not followed. I will not repeat the technicalities that I mentioned in Committee, but I refer any hon. Members, interested in the difficulties which are put in the way of the receive, to the Official Report at columns 165 to 166.
A receiver has the ability to exclude personal liability to himself for the affairs of an ailing company, but this appears to cease once a company goes into liquidation. As the law now stands, a receiver may well be able to resist a petition for the winding-up of a company, with the support of other creditors, but it will become considerably more difficult to do so if clause 10 as it stands comes into play.
This could have important consequences for employment, because the effect of a compulsory winding-up is to terminate that company's contracts with its employees. From then on, the receiver could continue to trade only by assuming such contracts personally; therefore he would make himself liable not only for redundancy entitlement but also for claims for unfair dismissal and all the obligations of the Employment Protection Act 1975. There would be very greatly increased difficulties of sustaining a company in being in such circumstances and, indeed, of saving jobs and preserving the company's trading connections and goodwill, let alone giving it an opportunity of being nursed back to health.
The requirements of clause 10 appear to ignore the very important alternative to liquidation which is provided by receivership or moratorium, and that is a deed of arrangement in the case of an individual. This has in past years saved many hundreds of companies and individuals, from Rolls-Royce to Britten-Norman. I think it is fair to say that the principle of receivership is that a going concern has a higher value than one in a position of break-up. There are many cases, going back as far as Earls Court during the war, where businesses have run into liquidity problems and the banks have appointed a receiver, who has then


been able to steer them back to profitability without going into liquidation.
The route of using receivership is used and known and, I believe, favoured in Government circles. Following our debates in Committee, I wrote to the Financial Secretary on this very point on 23rd June 1978. The practical scope and position of a receiver is particularly relevant to the options available to Government when considering proposals for assistance to companies in financial difficulties. Recent examples include West Coast Tanneries in Millom and Rivington Carpets in Bolton. In each case assistance was given to purchasers who were able then to provide the extra management and financial backing which the predecessor business had lacked. As a result, a number of jobs were saved, which would not have been the case if the receiver had ceased to trade.
When we are considering the point of cost, we have to offset the cost to the Customs and Excise of widening the scope of clause 10 against the obligations which the Government will have to assume for social security payments and other outgoings if more companies are forced into liquidation.
There was a very important letter in the Financial Times last Thursday. It was signed by the partners of five of the leading City firms of accountants. They said, among other things:
For corporate debtors the clause will be destructive of asset values, productive capability and employment. In the case of private individual debtors the effect is equally regrettable. The debtor will be required to be made personally bankrupt before relief is granted and the alternative of a deed of arrangement with creditors will not qualify.
Those are serious words from an authoritative source, and I hope that the Government will take the point very seriously.
Finally, I make a small point about timing. The vast majority of companies which enter into receivership pass within two or three years into liquidation, although in the meantime it may well have been possible for the receiver to preserve and to sell a viable business out of the wreck of the company. It follows that in the majority of cases the relief which is being proposed in the Bill would be paid anyway in the long run even if the clause is not to be extended to include

receivers. To that extent the cost to the Revenue is only one of financing the difference in time.
Although this is a technical and complex point, I think that the principle is urgent and important. If we do not remedy this situation now, it has the potential of causing far-reaching damage.

Mr. Graham Page: Clause 10, which purports to give relief for bad debts, would be welcome if it really carried out that purpose, but the restrictions on the use of the clause are so great that I doubt whether it will be of any real benefit. It is restrictive because in order to prove the bad debt, the creditor has to prove that the debtor is insolvent. Further in the clause, the creditor can prove that insolvency only by showing that he has sent the individual bankrupt or has wound up the company.
Perhaps I may refer to a later clause, clause 41, without debating it but merely quoting part of it. It is a peculiar thing that when we are talking about bad debts in relation to capital gains tax, they are described in this way:
the inspector is satisfied that any outstanding amount of the principal of the loan has become irrecoverable.
That, of course, is the general rule in taxation in proving bad debts and having them allowed against profits. But I cannot see why there should be this great distinction between normal tax law and VAT. One knows, of course, that the Customs and Excise are laws unto themselves, as it were, but they really do not need all this protection that is given to them in the clause, as they could be otherwise satisfied that the debt is irrecoverable.
My hon. Friend the Member for Hitchin (Mr. Stewart) has, in his usual way, set forth very clearly compromise proposals—that one should go halfway and that if a receiver is appointed or if a deed of arrangement is made, that should be sufficient. With great respect to him, however, I do not see any reason why one should even go that distance in compromise. I therefore call attention to amendment no. 171, in which the insolvency could be proved merely by default. This is going straight back to the ordinary tax rules, and I hope that they will be accepted.

5.15 p.m.

Mr. Neville Trotter: I declare an interest in that I have acted as both receiver and liquidator in a number of unfortunate cases. There are, in fact, about 1,000 companies a year which end up in the hands of a receiver. They tend to be companies of a substantial nature because the debenture holder, who normally appoints, will not do so unless there are substantial assets. I believe that it would not be right to say that a receiver can normally save the company in its existing form. What he can often do is to save the business and transfer that business into more competent hands for the future. One of the effects of that, as my hon. Friend the Member for Hitchin (Mr. Stewart) said, is that employment is continued. I should have thought that that would be a consideration of great concern to the present Government.
Again, speaking with experience of these matters, I believe that my hon. Friend was absolutely right in saying that a receiver is very unwilling to continue to operate after a liquidator has been appointed because the receiver is then personally liable.
Therefore, I fully support the amendment moved by my hon. Friend and I believe, as an accountant, that all members of my profession who have experience of these matters would do the same.

Mr. Marcus Kimball: My right hon. Friend the Member for Crosby (Mr. Page) has highlighted the problem here—namely, Customs and Excise. I hate to say it, but I think that all of us in the House accept the fact that the Inland Revenue goes about its business in the most sophisticated and civilised way. Anyone who remembers the correspondence between the late A. P. Herbert and the inspector of taxes, which was carried on in verse in the columns of The Times, about a tax bill that he felt he could not or should not pay, will realise that provided one plays according to the rules of the game, the Inland Revenue carries on its business in a fairly civilised way.
However, one can hardly say the same about the Customs and Excise. Customs and Excise were set up to deal with piracy and smuggling, and they have not really got this approach out of their blood yet. I

agree that in dealing with the Inland Revenue the citizens of this country probably adopt a fairly sophisticated approach. The most law abiding citizen, when faced with the Customs man, immediately believes that smuggling is almost legitimate. So perhaps there is an approach on the part of the citizen to the Customs and Excise that is different from his approach to the Inland Revenue. This is reflected in the way that the Customs and Excise go about collecting their debts.
I agree that my hon. Friend the Member for Hitchin (Mr. Stewart) has proposed a thoroughly reasonable compromise. I should like to see him being a lot more reasonable. I am very conscious of the fact that when I was an undergraduate I used to get letters from the Society for the Protection of Trade. I remember a friend of mine papering all the walls of his room with letters from that society. These were about bills from traders which were unpaid, and I should have thought that if the trader was proceeding to take the necessary steps to recover his debt by referring it to the Society for the Protection of Trade in order to collect that debt, that ought to be a sufficient reason for the Customs and Excise not to demand that the debt should be paid.
As I understand it, VAT is a tax on the invoice. It is not a tax on having sold the goods. It is not a tax on having made a profit. It is a tax on having invoiced the goods. There is nothing immoral in taking the maximum amount of credit from any trader who is mug enough to give it. Traders are extremely stupid in the way that they grant credit, and they deserve everything that is coming to them in that way. But what is totally immoral is for the Customs and Excise to take money from a person when he has not actually got it.
Parliament used to feel very strongly about no taxation without representation. I feel extremely strongly about the immorality of the Customs and Excise seizing debts and attempting to take money from someone who has not actually got it. I entirely support my hon. Friend and I wish that he had gone further with his amendment.

Mr. Pardoe: I am afraid that the hon. Member for Gainsborough (Mr. Kimball) was referring to the Inland Revenue in a


previous age. I am not sure that I would draw this rigid distinction between the civilisation of the Inland Revenue and the ferocity of the Customs and Excise. Certainly the Customs and Excise earned their reputation in Cornwall in the eighteenth and nineteenth centuries. They were little better than brigands. Some of my constituents have the same view of officers of the Inland Revenue today. I fear that they may have been infected by the manners and habits of the Customs and Excise. Certainly A. P. Herbert's correspondence, civilised as it was, and even rhyming as it was, happened a long time ago. I am not entirely convinced that the Inland Revenue would know how to rhyme today.
I welcome the bad debt relief in the Bill. It always seemed crazy, to anyone looking in from outside who had not taken a detailed part in the formulation of VAT, that a man could be taxed on what he had not received. The hon. Member for Gainsborough is right. It is when one considers that it is not a tax on a sale or a tax on a receipt, that one realises that it is neither an expenditure tax nor a sales tax, but is an invoice tax.
It was for that reason that the hon. Member for Worthing (Mr. Higgins), I think, defended at some length, in the original debates way back in 1972, the principle that the Customs and Excise should be able to keep the money even though the man had never received the goods. We have to ask why a Conservative Government then, with all the advice that was available to them, decided that bad debt relief of any kind at all was impossible—and they did.
The argument is pretty strong. I must admit that at times I have even been convinced by it. But in the last few months I have managed not to be convinced by it. There is a very strong case indeed for doing what the Government have done, and I am delighted that they have done it. But the problem, which in 1972 caused the Conservative Government to do what they did is that a whole host of fiddles could creep in if one were not able to define the bad debt very narrowly indeed. It was on this point that in 1972 the argument took place. Interestingly enough, it was on this point that the Conservative Party's own discussion document on VAT and

bad debt relief centred. That discussion document came to the conclusion that it would have to be a bad debt proved by insolvency which would be relieved and that if one went wider than that, all these various fiddles would creep in.
I am convinced by that Conservative Party discussion document. The Inland Revenue appears to have been convinced by it, and the Government appear to have been convinced by it. I think that the clause as it stands in the Bill is a great advance on the VAT which we had before. I wholeheartedly welcome it. I do not think that we should go down the road of these amendments, because there are a host of things which unseemly characters will be able to do. Some hon. Members may actually welcome that because it would ensure that the taxpayer got even with Customs and Excise. I might even be fairly sympathetic to that view, but I do not think that we should do this. Instead, I believe that we should accept the bad debt relief as provided for in the Bill.

Mr. John Wakeham: While I welcome the relief from VAT given for bad debts in this clause, I must say that there are aspects of the clause which make me more unhappy than virtually any other aspect of this Finance Bill. I cannot see what sense there is in making a man bankrupt when there is no money to be obtained. This seems to be entirely out of spirit with the times. Unless there can be a very good reason for it, I am not at all satisfied. The same applies to liquidations. What sense is there in liquidation when there are no assets to arrive at?
If there had not been well established over a long time—I do not accept that this will result in a great many fiddles—a perfectly satisfactory system for dealing with bad debts in our income tax and corporation tax legislation, which could be perfectly well used in this particular case, I would then accept that there could be an argument in favour of what the Government propose. However, we have a precedent which is perfectly satisfactory.
Indeed, I looked up the position under the old purchase tax arrangements, because a great deal of what is contained in VAT legislation has sprung from purchase tax. So far as I can discover,


it is quite clear that in purchase tax there was no statutory provision for bad debts. But an extra-statutory concession was available. From researches that I have made over the last 24 hours, I know that there are known examples of extra-statutory concessions which would have been far less restrictive than the arrangements for VAT made statutorily under this clause.

Mr. David Mitchell: In those extra-statutory arrangements which in practice exist, would my hon. Friend include the practice which goes on in a number of companies which, when they see a bad debt coming, issue a credit note so that no VAT becomes liable on transactions? Since I understand that that is fairly widespread, I do not know whether the Minister intends to condone it by putting into law or whether my hon. Friend includes it in the extra-statutory arrangements.

Mr. Wakeham: As far as I understand it, the position is that a credit note, which is put through the books purely in order to get VAT back in this fashion, would not be a valid transaction. I think that a credit note, which is an adjustment of the invoice price arrived at in circumstances to assist the debtor and so on, would be legitimate. That is obviously a way in which some people have quite properly dealt with this problem. But the area between what is allowed and what is not allowed is narrow, although it is quite clear. I certainly would not condone a system whereby artificial transactions were put through. Everyone faced with this situation ought to take proper advice as to what arrangements he can legitimately make. Therefore, I condemn these very restrictive proposals, not only because they do not compare well with income tax but because in practice they do not even compare with what was available under the old purchase tax arrangements.
When he replied in Committee, the Minister used as his principal argument the question of cost. He said that under the concessions in the Bill it would cost £35 million and that if he were to concede what we had asked for it would cost £100 million. While I know that the Financial Secretary would not have worked out these figures himself, and that he has to accept a great deal of what is

given to him, I believe that we ought to look for a minute at the implications of what he is saying, because I find that it strains my credibility to the utmost.
He is saying that there would be an extra £65 million of concessions. When we are talking about an 8 per cent. VAT, it is not a very complicated sum to work out that that represents £800 million of outstanding debt upon which some relief on VAT would be obtained because it is a bad debt. Is the Minister saying that people are unlikely to claim these debts by putting companies into receivership or making debtors bankrupt? Is he saying that these debts will be written off and that this particular relief will not have to be given by the Revenue? I find that figure incredible, and I would be grateful if the Minister could give me a further explanation as to how it was arrived at.
There are one or two practical points which have not yet been covered. We have already made the valuable and significant point with regard to receivership and the effect on employment. The same point can be made in relation to the ability to organise a moratorium in appropriate cases. In many companies many difficult situations are dealt with by unofficial moratoria of one sort or another. These, too, will be thrown into great difficulty by this legislation where this relief is available only in cases of bankruptcy.
Thirdly, there is also the question of the additional work which will arise in the Official Receiver's office. In particular, I wonder whether the Minister can give us some explanation as to the effect on companies which are struck off under section 353 of the Companies Act. Many of these companies are struck off because they are defunct or because there is no point in pursuing debts of one sort or another. For example, in 1976, 28,296 companies were struck off in this way. Many of them were defunct and many of them had debts outstanding which no one was bothering to pursue. In the same year the Official Receiver was appointed a liquidator in respect of only 1,906 of those companies.
How many more companies will now have to go through compulsory liquidation, which will fall upon the Official Receiver and produce additional costs which will fall on the public Exchequer, because someone is now pressing to wind


up a company in order to register a debt as a bad debt which is already known to be a bad debt? Indeed, one might ask the Financial Secretary what will happen to companies which are struck off under section 353 of the Companies Act anyway. Will people be allowed to get relief for debts against a company which has been struck off in that way? I do not think that the legislation covers that.
5.30 p.m.
I accept the principle of granting bad debts relief for VAT. I think that the Government ought to look again at the terms and conditions, which clearly are very unsatisfactory. If they do not look at them again fairly quickly, my guess is that they will be forced to do so, because the first time that they encounter a receivership in respect of an industry which is politically and socially important, the unsecured creditors will press the Government hard, knowing the difficulties which the receiver will be put into, to get some sort of satisfactory solution.
The Government are not facing the reality of what they are doing by leaving this amendment to the law in such an unsatisfactory state. If they do not do it now, they will be forced into doing it when it will be much inconvenient for them. They should face the logic of what they are proposing in giving bad debt relief in the first place by doing the job in a proper and equitable manner.

Mr. Robert Sheldon: This debate, inaugurated by the amendment moved by the hon. Member for Hitchin (Mr. Stewart), has concerned itself substantially with the effect of bad debt relief on firms which finding themselves in trouble, might be more liable to be put into liquidation than into receivership. I am aware that receivership is held by many people to offer the best chance for recovery of bad debts.
Clause 10 was introduced following representations made last year and the subsequent debates on the Finance Bill. It allows bad debt relief only in cases where the debtor has been declared bankrupt or where the company is being wound up. We have made it clear that there would be problems about extending the relief further than that.
This amendment seeks to provide extension of this relief. Amendment no.
112 and those amendments grouped with it extend the relief to all cases where the debtor enters into an arrangement of some kind with the supplier. Amendment no. 117 proposes that where the debtor is in receivership or where there is an arrangement, the creditor who gets bad debt relief should repay the VAT element of the relief he has received in any subsequent dividend. Obviously this is based on a tax-inclusive system of claims on the debtor.
I note the examples which were put forward by the hon. Member for Hitchin. Any decision to press for winding up of a company is bound to result from a mixture of different motives. Part of the mixture is bound to be a basic commercial judgment about the possibility of reviving the business; if there is any hope, it will always be the intention of the creditors to assist as much as they can without compromising their own financial position. However, in cases where there can be no possibility of the business continuing in its existing form, it will be argued that a successful receivership offers the best opportunity for the continued existence of the company. These major decisions will continue to be taken in the way in which they are normally taken now. But it will be argued that because of the 8 per cent. VAT element given in clause 10 it might be marginally better to press for liquidation in order to get a slightly larger dividend than would otherwise be available.
In Committee, the hon. Member for Cornwall, North (Mr. Pardoe) pointed out that the 8 per cent. was a marginal increase and that there was the added risk of losing potentially larger dividends, and I do not think that there was any incontrovertible argument against that.
The major factor in constructing a bad debt relief scheme—and it is one of which we have to take account, because we are dealing with about 12,000 liquidations a year—was that we needed a simple form to administer so that those who wanted to get bad debt relief would not have an immensely complicated task to obtain that relief, perhaps resulting in more than the midnight hours that we heard of in an earlier amendment. A simple scheme would cut out a great deal of work and effort not only by those claiming the relief but also by the liquidators or receivers


concerned, and the Customs and Excise, too.
What we have proposed is essentially a very simple scheme with little formality and little delay in payment. The scheme works on the principle that the claim by a creditor to the liquidator is to be for a tax-exclusive amount of debt, with the full refund coming from Customs and Excise by way of the value added tax on the debt itself. The refund is obtained very easily by entering a credit on the very next VAT return. If the creditor receives a dividend, nothing needs to be paid to Customs and Excise because the original claim itself was tax-exclusive. We were pleased that at least on this aspect of the value added tax we had achieved a worthwhile simplicity of operation which could deal readily with a large number of potential claims.
It would be possible, of course, to have tax-inclusive schemes, because the dividends will be low under a liquidation and the Treasury might therefore be able to forgo the VAT element in such dividends. But the dividends available in receiverships and the dividends available in arrangements may be much higher than in liquidations. Therefore, in a tax-inclusive scheme, repayment of the VAT element of dividends would be required of the trader.
If we include voluntary arrangements by debtors and their creditors, not only do we have the financial disadvantages to which I have just referred but we are also deprived of certain basic checks in the scheme. These checks were adverted to by the hon. Member for Cornwall, North, when lie pointed out the possibility of collusion. In a deed of arrangement, which can be just a number of individuals getting together to agree about the nature of the debt itself, these difficulties can arise.
So we had to have a scheme which retained some simplicity. Without it, we have to come up with an entirely new scheme to take account of these problems.
The fact that a receiver has been appointed to a company does not mean necessarily that all its debts will turn out to be bad. The receivership may be a success, and then, for the purposes of granting relief, it would be necessary to

define what exactly constitutes a bad debt. Creditors would then qualify for the relief only to the extent that that debt fell within that definition.
In a similar way, entry into an arrangement does not necessarily imply that ultimately there will be any bad debts. Following a moratorium, of course, the debt could be repaid in full. An interim dividend payable under an arrangement may be succeeded in time by further dividends or even by the entire debt being recovered. In those circumstances, substantial sums of public money would have been paid out unnecessarily.
It is quite impossible to extend the present proposals to include only receiverships and arrangements. There are other forms of arrangements which would have to be monitored and which cannot be defined satisfactorily.
We then face the alternative of comprehensive relief, to which I am much attracted. It would provide for the repayment of value added tax in any bad debt. As I mentioned in Committee, the difficulty is the cost of such a scheme—it could be a further £60 million—and we would also be denying those who wished to make claims for bad debt relief the essential simplicity to which I have referred.
I turn to amendment no. 113. This does not define an arrangement, and it would apply not only to compositions under the Companies Act but also to informal arrangements—moratoria and so on—which tend to be far more prevalent. Indeed, it could be argued that acceptance of any bad debt by a creditor is tantamount to an arrangement. If the creditor says that he calls this debt a bad one, then there is little to distinguish that statement from an arrangement, as it is normally defined. It would be administratively costly and quite impractical for the commissioners to satisfy themselves in advance in each such case about the condition in amendment no. 113, that the creditor is unlikely to receive the outstanding amount within two years. For the Inland Revenue to make a qualitative judgment of that kind does not provide the basis for satisfactory legislation.

Mr. Wakeham: Does the Financial Secretary agree that the Inland Revenue does make that judgment now for income


tax purposes? Why cannot Customs and Excise do the same thing?

Mr. Sheldon: In this case we shall be making disbursements of public money, and asking for an analysis of a kind that Customs and Excise are not fitted to do. This would require immense administrative effort, and there would be serious difficulty in ensuring that the VAT element in any ultimate dividend was refunded. The position for VAT is not comparable with that for direct taxation because in the latter case the amounts recovered are automatically included in the taxable profits for the financial year in which they are recovered.
Finally, the wording of the amendment is such that it could be interpreted as covering receiverships and arrangements already in existence, and would so increase the cost of the relief.
Amendment no. 45 proposes that, in addition to the formal insolvency criterion, relief should be given provided that the Inland Revenue agree that a debt is irrecoverable for income or corporation tax purposes. The amendment would introduce even further complications where the debtor was declared insolvent because the supplier could either defer his claim until the Inland Revenue had agreed that the debt was irrecoverable, or, if he wished to obtain the relief earlier, try to prove that this was an insolvency case and claim for the tax exclusive amount of the debt. There would be two choices open to him. Depending upon which course the supplier used, his claim on the debtor could be either on a tax exclusive or a tax inclusive basis. The confusion that this would cause among traders and those responsible for administration would be almost insuperable.
Amendment no. 46 looks attractive on the face of it because it deals with non-insolvency debts not exceeding £1,000. It has some of the appearance, if not the reality, of a de minimis provision. In fact, of course, the amendment would have the same disadvantages of amendment no. 45 in its administrative effect. Amendment no. 47 covers the same points as amendment no. 112.
I deal now with amendments nos. 171 to 174, and the arguments put by the right hon. Member for Crosby (Mr. Page).

Here the test for relief is obtaining a judgment, and after that satisfying the commissioners that the creditor has taken all reasonable steps to recover the amount. The problem here is that many more claims could be made on this basis. Then, of course, there is the problem of past debt and the distinction between old and irrecoverable debt.
The House must decide which of the two paths we should go along. We have produced in clause 10 a simple scheme that has the attractions of a trader being able to obtain a refund of the VAT which he has been called upon to pay. This can be done very simply, very easily and at reasonable cost. The other alternative is to produce a comprehensive scheme—expensive, very complicated and needing a much greater administrative effort by Customs and Excise, but meeting most of the arguments put forward by hon. Members who have contributed to the debate.
What we have done is to produce a first step with which I think we should be satisfied at this stage. I take serious note of the argument about the fears about companies going into liquidation. I think that these fears have been exaggerated, but I have listened to the arguments and I do not deny that there might be some effect in this direction. Therefore, I propose to ask Customs and Excise to monitor very closely the effect of clause 10 in practice and I shall see that they maintain close contact with bodies which specialise in receiverships so that they can learn quickly whether the clause were to affect them in the way suggested. We would stand ready to take action if this appeared to be necessary.

Mr. Graham Page: What about the case of a company which is struck off without there being a creditors' voluntary winding up or even a court order in some cases? Surely there would have to be some extra statutory concession in such a case.

Mr. Sheldon: Most companies that are struck off are struck off because there are no trading records. It does not affect the question of liquidation as a rule. If there were problems, we could deal with them in the way that the right hon. Gentleman suggests.

5.45 p.m.

Mr. Peter Rees: I sense that the Financial Secretary is a little uncertain and uneasy about his position. He has conceded that the Customs and Excise will need to monitor very carefully the clause if it is enacted unamended. I suspect that if he were pressed he would recognise that there is considerable force in our arguments deployed in the course of this short but very useful debate.
We are appreciative that the Government have taken on board at last, in deference to representations, many of them made in the course of debates over the past few years, that there should be relief for bad debts in VAT. The Financial Secretary has commended clause 10 on the basis that the scheme proposed is cheap and simple. But if the principle that there should be relief for bad debts is acceptable, I do not believe that the question of costs should weigh with us unduly. It would be wrong to say that we accept the principle to a degree but that we will circumscribe it to meet some preordained budget. Either one believes in the general principle of relief for bad debt or one does not.
I was particularly impressed by the arguments of my hon. Friend the Member for Maldon (Mr. Wakeham) who demonstrated that there cannot be as much of a discrepancy as that between £35 million and £100 million—the figures given upstairs. Indeed, the Financial Secretary was bound to concede that those figures are based at best on inspired guesswork. I do not attach too much weight to them.
Therefore, the Financial Secretary is forced back on to the argument of simplicity. He says that insolvency is precise, it is easily understood and can be determined as a matter of law. Also there will be no difficulty with Customs and Excise or for the registered trader. One would concede that simplicity is important in a way, but I do not see that the various alternative proposals which have been embodied in the amendments debated this afternoon also lack simplicity. Also that simplicity which the Financial Secretary prays in aid is of such a narrow kind that, as he is bound to admit, a great number of bad debts, on any normal commercial use of the term, will be excluded.
As has been pointed out in a great number of very able and lucid speeches from this side of the House, the consequences of clause 10 if unamended will be extremely unattractive, if not to say impracticable. The Financial Secretary was bound to concede that, since he has said that he will instruct the Customs and Excise to monitor the consequences of this clause if it is passed unamended.
I do not want to go over the ground covered so admirably by my right hon. and hon. Friends. I understand that the Financial Secretary is constitutionally responsible for both the Inland Revenue and the Customs and Excise, but he does not seem to know what his right hand or his left hand are doing, because the Inland Revenue has managed to operate a had debt relief scheme of the simplest possible sort for many years. It has been in operation since about 1847 and has not occasioned the Inland Revenue or the taxpayer many problems.
I do not seek to draw any distinction between the benevolence and competence of the Inland Revenue and the Customs and Excise. I leave that to the hon. Member for Cornwall, North (Mr. Pardoe) who evidently has a closer acquaintance with pirates than I have, though I also represent a coastal seat. I do not want to get involved in interdepartmental or inter-constituency rivalries.
I credit the Customs and Excise with as much experience, competence and benevolence as has the Inland Revenue. The hon. Member for Cornwall, North described all tax gatherers as publicans and sinners, but I am prepared to credit both arms of the service with the same qualities. I do not believe that those in the Customs and Excise fall short of the qualities of their bretheren in the Inland Revenue and I believe that they would easily be able to operate a system of relief based on the principles that have long been accepted by the Commissioners of Inland Revenue.
In an endeavour to meet the arguments of the Financial Secretary, although we are not over-impressed with them in Committee, we put down a variety of amendments based on receiverships, moratoria and other such matters. Had the right hon. Gentleman shown any disposition to meet us on those matters or, in the words of his right hon. Friend the Minister of


State, to give an undertaking to introduce comparable amendments in the next Finance Bill, I would have counselled my colleagues not to press any of our amendments to a Division.
The Financial Secretary said that he had moved a step forward, but it was the faultering, half-step that he has moved so often, and I do not believe that he has taken on board the extremely cogent arguments of my right hon. and hon. Friends against clause 10. We have pointed out the extremely unattractive consequences, the problems over the number of insolvencies and redundancy payments and all the complications involving companies that have been struck off under section 353.
In order to mark our disapproval of the Government's point of view and to inject a note of urgency into our debates and into the monitoring activities of the Customs and Excise, we should go back to the Inland Revenue position which is

best set out in amendment no. 171. I therefore urge my hon. Friend the Member for Hitchin (Mr. Stewart), notwithstanding the elegance and eloquence with which he moved amendment no. 112, to withdraw it and to allow my right hon. Friend the Member for Crosby (Mr. Page) to press amendment no. 171 to a Division.

Mr. Ian Stewart: I cannot resist an invitation put in such terms and, in order to make way for my right hon. Friend the Member for Crosby (Mr. Page), I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 171, in page 8, line 33, leave out 'become insolvent' and insert 'defaulted in payment thereof'.—[Mr. Graham Page.]

Question put, That the amendment be made:—

The House divided: Ayes 247, Noes 284.

Division No. 261]
AYES
[5.55 p.m.


Adley, Robert
Crouch, David
Hampson, Dr Keith


Aitken, Jonathan
Crowder, F. P.
Hannam, John


Alison, Michael
Davies, Rt Hon J. (Knutsfprd)
Harrison, Col Sir Harwood (Eye)


Amery, Rt Hon Julian
Dean, Paul (N Somerset)
Harvie Anderson, Rt Hon Miss


Arnold, Tom
Dodsworth, Geoffrey
Haselhurst, Alan


Atkins, Rt Hon H. (Spelthorne)
Douglas-Hamilton, Lord James
Hastings, Stephen


Atkinson, David (B'mouth, East)
Drayson, Burnaby
Havers, Rt Hon Sir Michael


Awdry, Daniel
du Cann, Rt Hon Edward
Hawkins, Paul


Baker, Kenneth
Durant, Tony
Hayhoe, Barney


Banks, Robert
Eden, Rt Hon Sir John
Heath, Rt Hon Edward


Bell, Ronald
Edwards, Nicholas (Pembroke)
Hicks, Robert


Bennett, Sir Frederic (Torbay)
Elliott, Sir William
Higgins, Terence L.


Bennett, Dr Reginald (Fareham)
Emery, Peter
Hodgson, Robin


Benyon, W.
Eyre, Reginald
Holland, Philip


Berry, Hon Anthony
Fairbairn, Nicholas
Hordern, Peter


Biffen, John
Fairgrieve, Russell
Howe, Rt Hon Sir Geoffrey


Biggs-Davison, John
Farr, John
Howell, David (Guildford)


Blaker, Peter
Fell, Anthony
Howell, Ralph (North Norfolk)


Body, Richard
Finsberg, Geoffrey
Hunt, David (Wirral)


Boscawen, Hon Robert
Fisher, Sir Nigel
Hunt, John (Ravensbourne)


Bottomley, Peter
Fletcher, Alex (Edinburgh N)
Hurd, Douglas


Bowden, A. (Brighton, Kemptown)
Fletcher-Cooke, Charles
Hutchison, Michael Clark


Braine, Sir Bernard
Forman, Nigel
Irving, Charles (Cheltenham)


Brittan, Leon
Fox, Marcus
James, David


Brocklebank-Fowler, C.
Fraser, Rt Hon H. (Stafford &amp; St)
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)


Brooke, Hon Peter
Galbraith, Hon T. G. D.
Jessel, Toby


Brotherton, Michael
Gardiner, George (Reigate)
Jones, Arthur (Daventry)


Brown, Sir Edward (Bath)
Gardner, Edward (S Fylde)
Jopling, Michael


Bryan, Sir Paul
Gilmour, Rt Hon Sir Ian (Chesham)
Joseph, Rt Hon Sir Keith


Buchanan-Smith, Alick
Gilmour, Sir John (East Fife)
Kaberry, Sir Donald


Buck, Antony
Glyn, Dr Alan
Kershaw, Anthony


Budgen, Nick
Godber, Rt Hon Joseph
Kimball, Marcus


Bulmer, Esmond
Goodhart, Philip
King, Evelyn (South Dorset)


Butler, Adam (Bosworth)
Goodlad, Alastair
King, Tom (Bridgwater)


Chalker, Mrs Lynda
Gorst, John
Knight, Mrs Jill


Channon, Paul
Gow, Ian (Eastbourne)
Knox, David


Clark, Alan (Plymouth, Sutton)
Gower, Sir Raymond (Barry)
Lamont, Norman


Clark, William (Croydon S)
Grant, Anthony (Harrow C)
Langford-Holt, Sir John


Clarke, Kenneth (Rushcliffe)
Gray, Hamish
Lawrence, Ivan


Cockcroft, John
Grieve, Percy
Lawson, Nigel


Cooke, Robert (Bristol W)
Griffiths, Eldon
Lester, Jim (Beeston)


Cope, John
Grylls, Michael
Lewis, Kenneth (Rutland)


Cormack, Patrick
Hall-Davis, A. G. F
Lloyd, Ian


Corrie, John
Hamilton, Archibald (Epsom &amp; Ewell)
Loveridge, John


Costain, A. P.
Hamilton, Michael (Salisbury)
Luce, Richard




McAdden, Sir Stephen
Page, John (Harrow West)
Spence, John


McCrindle, Robert
Page, Rt Hon R. Graham (Crosby)
Spicer, Jim (W Dorset)


Macfarlane, Neil
Page, Richard (Workington)
Spicer, Michael (S Worcester)


MacGregor, John
Parkinson, Cecil
Sproat, Iain


MacKay, Andrew (Stechford)
Percival, Ian
Stainton, Keith


Macmillan, Rt Hon M. (Farnham)
Peyton, Rt Hon John
Stanbrook, Ivor


McNair-Wilson, M. (Newbury)
Pink, R. Bonner
Stanley, John


McNair-Wilson, P. (New Forest)
Prentice, Rt Hon Reg
Steen, Anthony (Wavertree)


Madel, David
Price, David (Eastleigh)
Stewart, Ian (Hitchin)


Marshall, Michael (Arundel)
Pym, Rt Hon Francis
Stradling Thomas, J.


Marten, Nell
Raison, Timothy
Tapsell, Peter


Mather, Carol
Rathbone, Tim
Taylor, R. (Croydon NW)


Maude, Angus
Rees, Peter (Dover &amp; Deal)
Taylor, Teddy (Cathcart)


Maudling, Rt Hon Reginald
Rees-Davies, W. R.
Tebbit, Norman


Maxwell-Hyslop, Robin
Renton, Rt Hon Sir D. (Hunts)
Thomas, Rt Hon P. (Hendon S)


Mayhew, Patrick
Renton, Tim (Mid-Sussex)
Townsend, Cyril D.


Meyer, Sir Anthony
Rhodes James, R.
Trotter, Neville


Miller, Hal (Bromsgrove)
Rhys Williams, Sir Brandon
Vaughan, Dr Gerard


Mills, Peter
Ridley, Hon Nicholas
Viggers, Peter


Miscampbell, Norman
Ridsdale, Julian
Wakeham, John


Mitchell, David (Basingstoke)
Rifkind, Malcolm
Walder, David (Clitheroe)


Moate, Roger
Roberts, Wyn (Conway)
Walker-Smith, Rt Hon Sir Derek


Monro, Hector
Rossi, Hugh (Hornsey)
Wall, Patrick


Moore, John (Croydon C)
Rost, Peter (SE Derbyshire)
Walters, Dennis


More, Jasper (Ludlow)
Royle, Sir Anthony
Warren, Kenneth


Morgan, Geraint
St. John-Stevas, Norman
Weatherill, Bernard


Morgan-Giles, Rear-Admiral
Scott, Nicholas
Wells, John


Morris, Michael (Northampton S)
Scott-Hopkins, James
Whitelaw, Rt Hon William


Morrison, Charles (Devizes)
Shaw, Giles (Pudsey)
Whitney, Raymond


Neave, Airey
Shaw, Michael (Scarborough)
Wiggin, Jerry


Nelson, Anthony
Shelton, William (Streatham)
Winterton, Nicholas


Neubert, Michael
Shepherd, Colin
Wood, Rt Hon Richard


Newton, Tony
Shersby, Michael
Young, Sir G. (Ealing, Acton)


Normanton, Tom
Silvester, Fred
Younger, Hon George


Nott, John
Sims, Roger



Onslow, Cranley
Sinclair, Sir George
TELLERS FOR THE AYES:


Oppenheim, Mrs Sally
Skeet, T. H. H.
Mr. Spencer Le Marchant and


Osborn, John
Smith, Timothy John (Ashfield)
Mr. Peter Morrison.


NOES


Abse, Leo
Cox, Thomas (Tooting)
Flannery, Martin


Allaun, Frank
Craigen, Jim (Maryhill)
Fletcher, Ted (Darlington)


Anderson, Donald
Crawford, Douglas
Foot, Rt Hon Michael


Archer, Rt Hon Peter
Crawshaw, Richard
Ford, Ben


Armstrong, Ernest
Cronin, John
Fowler, Gerald (The Wrekin)


Ashton, Joe
Crowther, Stan (Rotherham)
Fraser, John (Lambeth, N'w'd)


Atkins, Ronald (Preston N)
Cryer, Bob
Freeson, Rt Hon Reginald


Atkinson, Norman (H'gey, Tott'ham)
Cunningham, G. (Islington S)
Garrett, John (Norwich S)


Bagier, Gordon A. T.
Cunningham, Dr J. (Whiteh)
Garrett. W. E. (Wallsend)


Bain, Mrs Margaret
Dalyell, Tam
George, Bruce


Barnett, Guy (Greenwich)
Davidson, Arthur
Ginsburg, David


Barnett, Rt Hon Joel (Heywood)
Davies, Bryan (Enfield N)
Golding, John


Bates, Alf
Davies, Rt Hon Denzil
Gould, Bryan


Bean, R. E.
Davies, Ifor (Gower)
Gourlay, Harry


Beith, A. J.
Davis, Clinton (Hackney C)
Grant, John (Islington C)


Benn, Rt Hon Anthony Wedgwood
Deakins, Eric
Grimond, Rt Hon J.


Bidwell, Sydney
Dean, Joseph (Leeds West)
Grocott, Bruce


Bishop, Rt Hon Edward
de Freitas, Rt Hon Sir Geoffrey
Hamilton, James (Bothwell)


Blenkinsop, Arthur
Dell, Rt Hon Edmund
Hamilton, W. W. (Central Fife)


Booth, Rt Hon Albert
Dempsey, James
Hardy, Peter


Boothroyd, Miss Betty
Dewar, Donald
Harrison, Rt Hon Walter


Bottomley, Rt Hon Arthur
Doig, Peter
Hart, Rt Hon Judith


Boyden, James (Bish Auck)
Dormand, J. D.
Hattersley, Rt Hon Roy


Bradley, Tom
Douglas-Mann, Bruce
Hayman, Mrs Helene


Bray, Dr Jeremy
Duffy, A. E. P.
Healey, Rt Hon Denis


Brown, Hugh D. (Provan)
Dunn, James A.
Heffer, Eric S.


Brown, Robert C. (Newcastle W)
Dunnett, Jack
Henderson, Douglas


Brown, Ronald (Hackney S)
Dunwoody, Mrs Gwyneth
Hooley, Frank


Buchan, Norman
Eadie, Alex
Horam, John


Buchanan, Richard
Edge, Geoff
Howell, Rt Hon Denis (B'ham, Sm H)


Callaghan, Jim (Middleton &amp; P)
Edwards, Robert (Wolv SE)
Hoyle, Doug (Nelson)


Campbell, Ian
Ellis, John (Brigg &amp; Scun)
Huckfield, Les


Canavan, Dennis
Ellis, Tom (Wrexham)
Hughes, Mark (Durham)


Carmichael, Nell
English, Michael
Hughes, Robert (Aberdeen N)


Carter-Jones, Lewis
Evans, Fred (Caerphilly)
Hughes, Roy (Newport)


Cartwright, John
Evans, Gwynfor (Carmarthen)
Hunter, Adam


Castle, Rt Hon Barbara
Evans, Ioan (Aberdare)
Irvine, Rt Hon Sir A. (Edge Hill)


Clemitson, Ivor
Evans, John (Newton)
Irving, Rt Hon S. (Dartford)


Cocks, Rt Hon Michael (Bristol S)
Ewing, Harry (Stirling)
Jackson, Miss Margaret (Lincoln)


Cohen, Stanley
Ewing, Mrs Winifred (Moray)
Janner, Greville


Cook, Robin F. (Edin C)
Faulds, Andrew
Jay, Rt Hon Douglas


Corbett, Robin
Fernyhough, Rt Hon E.
Jeger, Mrs Lena


Cowans, Harry
Fitch, Alan (Wigan)
Jenkins, Hugh (Putney)







John Brynmor
Newens, Stanley
Spriggs, Leslie


Johnson, James (Hull West)
Noble, Mike
Stallard, A. W.


Johnson, Walter (Derby S)
Oakes, Gordon
Steel, Rt Hon David


Jones, Alec (Rhondda)
Ogden, Eric
Stewart, Rt Hon Donald


Jones, Dan (Burnley)
O'Halloran, Michael
Stewart, Rt Hon M. (Fulham)


Judd, Frank
Orbach, Maurice
Stoddart, David


Kaufman, Rt Hon Gerald
Ovenden, John
Strang, Gavin


Kelley, Richard
Owen, Rt Hon Dr David
Summerskill, Hon Dr Shirley


Kerr, Russell
Padley, Walter
Swain, Thomas


Kilroy-Silk, Robert
Palmer, Arthur
Taylor, Mrs Ann (Solton W)


Kinnock, Neil
Pardoe, John
Thomas, Dafydd (Merioneth)


Lambie, David
Park, George
Thomas, Jeffrey (Abertillery)


Lamond, James
Parker, John
Thomas, Mike (Newcastle E)


Latham, Arthur (Paddington)
Parry, Robert
Thomas, Ron (Bristol NW)


Leadbitter, Ted
Pavitt, Laurie
Thompson, George


Lee, John
Pendry, Tom
Thorne, Stan (Preston South)


Lestor, Miss John (Elton &amp; Slough)
Perry, Ernest
Thorpe, Rt Hon Jeremy (N Devon)


Lever, Rt Hon Harold
Phipps, Dr Colin
Tierney, Sydney


Lewis, Ron (Carlisle)
Prescott, John
Tilley, John


Litterick, Tom
Price, C. (Lewisham W)
Tinn, James


Loyden, Eddie
Price, William (Rugby)
Tomlinson, John


Luard, Evan
Radice, Giles
Tomney, Frank


Lyon, Alexander (York)
Rees, Rt Hon Merlyn (Leeds S)
Torney, Tom


Mabon, Rt Hon Dr J. Dickson
Reid, George
Tuck, Raphael


McCartney, Hugh
Richardson, Miss Jo
Urwin, T. W.


MacCormick, Iain
Roberts, Albert (Normanton)
Varley, Rt Hon Eric G.


McDonald, Dr Oonagh
Roberts, Gwilym (Cannock)
Wainwright, Richard (Colne V)


McElhone, Frank
Robertson, George (Hamilton)
Walker, Harold (Doncaster)


MacFarquhar, Roderick
Robinson, Geoffrey
Walker, Terry (Kingswood)


McGuire, Michael (Ince)
Roderick, Caerwyn
Watkins, David


MacKenzie, Rt Hon Gregor
Rodgers, George (Chorley)
Watkinson, John


Maclennan, Robert
Rodgers, Rt Hon William (Stockton)
Watt, Hamish


McMillan, Tom (Glasgow C)
Rooker, J. W.
Weetch, Ken


McNamara, Kevin
Roper, John
Weitzman, David


Madden, Max
Rose, Paul B.
White, Frank R. (Bury)


Magee, Bryan
Ross, Stephen (Isle of Wight)
White, James (Pollok)


Mallalieu, J. P. W.
Ross, Rt Hon W. (Kilmarnock)
Whitehead, Phillip


Marshall, Dr Edmund (Goole)
Rowlands, Ted
Whitlock, William


Marshall, Jim (Leicester S)
Ryman, John
Wigley, Dafydd


Maynard, Miss Joan
Sandelson, Neville
Willey, Rt Hon Frederick


Meacher, Michael
Sedgemore, Brian
Williams, Rt Hon Alan 'Swansea W)


Mellish, Rt Hon Robert
Selby, Harry
Williams, Sir Thomas (Warrington)


Mikardo, Ian
Sever, John
Wilson, Gordon (Dundee F.)


Millan, Rt Hon Bruce
Shaw, Arnold (llford South)
Wilson, Rt Hon Sir Harold (Huyton)


Miller, Dr M. S. (E Kilbride)
Sheldon, Rt Hon Robert
Wilson, William (Coventry SE)


Mitchell, Austin (Grimsby)
Shore, Rt Hon Peter
Wise, Mrs Audrey


Mitchell, R. C. (Soton, Itchen)
Short, Mrs Renée (Wolv NE)
Woof, Robert


Molloy, William
Silkin, Rt Hon John (Deptford)
Wrigglesworth, Ian


Moonman, Eric
Silverman, Julius
Young, David (Bolton E)


Morris, Alfred (Wythenshawe)
Skinner, Dennis



Morris, Rt Hon Charles R.
Smith, Rt. Hon. John (N Lanarkshire)
TELLERS FOR THE NOES:


Morris, Rt Hon J. (Aberavon)
Snape, Peter
Mr. Donald Coleman and


Moyle, Rt Hon Roland
Spearing, Nigel
Mr. Ted Graham.

Question accordingly negatived.

Clause 15

CORPORATION TAX: OTHER RATES AND FACTIONS

Mr. David Mitchell: I beg to move amendment no. 48, in page 12, line 12, leave out '42' and insert '40'.

Mr. Deputy Speaker: With this we may take amendment no. 49, in page 12, line 14. at end insert—
'(2A) For the financial year 1977 and subsequent financial years, if a company eligible for the small companies rate of corporation tax elects to forgo first year allowances and stock relief, they shall pay corporation tax at a composite rate of 25 per cent.'.

Mr. Mitchell: In view of the printing strike the House may find it helpful if I set out the terms of the amendment.

Amendment no 48 seeks to reduce the rate of small firms corporation tax from 42 per cent. to 40 per cent.
I draw the attention of the House and the Minister of State to the fact that the amendment does not mention advance corporation tax. It is not intended to apply to ACT. If there should be any technical error in the drafting of the amendment, I shall be happy to assist by submitting a manuscript amendment if the right hon. Gentleman is prepared otherwise to accept the amendment.
The amendment deals with two important matters. First, it is concerned with simplification. Secondly, it is concerned with the need to increase the level of retained profits by cutting the amount of Government take, especially from small businesses.
I think that the Minister will find the amendment attractive to him. It gets him off a hook on which he has become impaled. He is a Minister in a Government who claim to be interested in and concerned about the problems of small businesses, yet the blanket increase in the national insurance surcharge has done immense damage to small businesses. The increase in the Government's take throughout the whole of the business community as a result of the new tax on national insurance is extremely serious.
I am sure that the right hon. Gentleman is anxious to find a way in which he may remedy the damage that has been done to the small business sector. The amendment allows him to arrive at the same conclusion but perhaps in a different way.
The Small Business Bureau has been collecting a great deal of information on the effects of inflation and the cash needs of smaller firms. Small businesses in particular need extra cash to finance the cost of stock. When there is inflation the same volume of stock ties up more money. They need extra cash because of debtors. When a business has sold stock and is waiting to be paid there is more paper money involved in the same volume of sales. When firms venture into the export trade, which the Government wish to encourage them to do, the extended credit which is taken by an overseas buyer, used in 90 days instead of 30 days, means that substantial additional sums are required.
There is also the important problem of replacement costs. I know that there are first-year allowances, but the problem for the small business is that if it purchased a printing press, for example, for £16,000 five or seven years ago it will cost £90,000 to replace. How does that business accumulate enough money and retain it in the business to meet the higher cost of modern equipment? If the Government are genuine in their desire to see an expansion of small businesses—and the job creation potential is enormous—they must ensure that the money is available to finance that expansion.
All this means that more money is needed within the business community. But the contrary is happening. At a time when businesses require more money, the Government are taking more money from

them. They are taking more money in the increased level of corporation tax. The first of our amendments seeks to take corporation tax back to the 40 per cent. level that it was when the Government came to office. It also deals with the special circumstances of the many less sophisticated companies.
Since the Minister might be doubtful about the importance of increased working capital to enable firms to remain competitive, I pray in aid the EEC study which was reported fully in The Times of 26th June. A study of small grocery stores shows that lack of working capital, rather than competition from the multiple supermarkets, is in many cases the cause of small businesses getting into financial difficulties.

The Minister of State, Treasury (Mr. Denzil Davies): The hon. Member mentioned small grocery stores. I presume he is thinking of those that are incorporated.

Mr. Mitchell: I am dealing, as did the EEC report, with businesses which are incorporated. There is nothing peculiar about grocers. The same financial principles, problems and restrictions apply to the grocery trade as they do to a multitude of other trades.
From previous debates I suspect that the Minister is likely to reply as did the Chief Secretary when he was taxed about this on a previous occasion. He said that nobody pays corporation tax and that he did not know why we should be so excited. [HON. MEMBERS: "Hear, hear."] I hear from below the Gangway accord with what I have been saying.
The truth is not that nobody pays corporation tax but that only the unsophisticated firms pay it. The sophisticated firms find ways round paying corporation tax, whether they are genuine or artificial. I pray in aid The Sunday Times report of last week which calculated that 13 out of Britain's top 20 industrial giants paid either no profits tax last year or only a nominal sum.
Let us examine the position of individual companies in the large firms sector —the sophisticated companies. Allied Breweries with profits of £63 million, paid no mainstream corporation tax. BAT, with £374 million profit, paid £2 million. BP, which is half owned by the Government, with £1,784 million pre-tax profit, paid no corporation tax. The Ford


company, with £122 million profit, paid no corporation tax. ICI, with £540 million profit, paid £12 million in corporation tax. Rio Tinto Zinc, with £279 million profit, paid no corporation tax.

Mr. Robert Kilroy-Silk: This is an incredible and disgraceful state of affairs, particularly in the context of the profits that these large companies are making and the huge subsidies and grants that they are receiving from the taxpayer. For them not to make a contribution to the national Exchequer is extraordinary. Yesterday the hon. Member for Basingstoke (Mr. Mitchell) and his hon. Friends wanted to tax unemployment pay. Previously they have suggested that tax should be imposed on a variety of other categories of people, including social security claimants. Will the hon. Member for Basingstoke now condemn in the same outspoken and forthright terms the large multinational and national companies which are making huge profits but making no contribution to the national Exchequer?

Mr. Mitchell: The Government have decided that large businesses require the opportunity not to pay corporation tax because of financial pressures and the amount of money that they need inside their businesses in order to cope with inflation. This arises mainly in the area of stock relief. The unsophisticated smaller businesses that do not have access to costly technical and professional advice end up paying corporation tax.

Mr. Denzil Davies: The hon. Member suggests that the large sophisticated businesses do not pay corporation tax because they are sophisticated and receive sophisticated advice. The reason why manufacturing companies, large and small, pay little corporation tax is partly the investment allowances and partly stock relief. There is nothing sophisticated about that.

Mr. Mitchell: That illustrates my argument. To the Financial Secretary it is clear. But if he had done as I have done and gone around the country listening to groups of small business men and hearing what happens on the ground, he would know that many small businesses do not even claim stock relief. Many small businesses' accountants advised them not to claim stock relief.
I can give the House an example from Wales. In one Welsh valley there are two accountancy practices. One accountant claims stock relief for all his clients. The other does not, on principle. He says that it is a deferred liability and he prefers his clients not to have deferred liabilities hanging over their heads. That is bad professional advice, but it is the reality of what is happening in Wales.
In Birmingham an accountant said to me at a meeting that he had a client who had £370,000 of deferred tax liability and he proposed to pay off £50,000 of it because he did not like deferred liabilities on his balance sheet. The accountant asked me "What advice do you give to me to give to my client?" I am in no position to give professional advice.
I could give further examples nearer to London of other accountants who have advised clients not to claim or who have gone along with clients who have suggested that they should not claim stock relief.
There is an enormous difference between, on the one hand, the sophistication of the Financial Secretary and of hon. Members who are familiar with the legislation, and, on the other hand, the reality of what it is like outside in the ordinary small business world. A man who is good at making widgets may know nothing about the intricacies of stock relief and first year allowances.
The proposition in the second amendment is that companies should have the option—but only an option—either to pay corporation tax with the existing reliefs in the way in which they do now or to pay at 25 per cent. and forgo the right to both stock relief and first-year allowances.

Mr. Denzil Davies: In his amendment the hon. Gentleman is seeking to give the option to choose stock relief. If these people are so unsophisticated, what is the point of the amendment? They will not know whether to exercise that option.

Mr. Mitchell: I am grateful for the opportunity to explain that any small business man faced with the option of paying 25 per cent. corporation tax instead of 42 per cent. will exercise that option if he is not sufficiently sophisticated to work his way round stock relief and first-year allowances. The Minister


does not have to accept my word for it. If he will go out into the sticks he will find large numbers of business men who are paying corporation tax but who would not if they were advised by someone as sophisticated as the Minister.
That explains why the second amendment should commend itself to the House. It simply provides that those who are good at their businesses but who do not have the benefit of expensive and skilled professional advice should be able to pay a much lower rate of tax. In doing so, they will release the funds necessary to enable the business to expand and provide jobs.
This is the touchstone of the Government's sincerity, which will show whether they believe in the growth of the small business sector and the provision of jobs within it.

Mr. Robert Edwards: I do not wish to delay the vote on this matter, but I must comment on the speech of the hon. Member for Basingstoke (Mr. Mitchell). From his remarks one would imagine that the Government were the enemies of the small business man, but it is the big multinational companies that are driving the small man out of business. The shortage of capital for small business men arises because the great consortiums of banks are controlled by the multinationals. The boards of our banks have an interchange of directorships with ICI and all the big multinational companies. It is they who have withdrawn the credit from the small business people. The small business men are now relying on the Government for money. The Government have offered them an alternative under the Industrial Common Ownership Act. If they want to continue with new ideas they can hand their shares in trust to their workers and start a healthy common ownership organisation.
My friend the late Dr. Schumacher, whom I knew for 20 years and who sat with me on a common ownership organisation called Scott Bader as a trustee director, wrote a book entitled "Small is Beautiful" which is frequently quoted in the House by Conservative Members. But small has not always been beautiful. Some of the worst exploiters in this country have been the high street shopkeepers.

I remember reacting in my youth and discussing with my friends a book called "The Ragged-Trousered Philanthropist", in which a small decorating business was the worst exploiter of all.
Do not let us exaggerate the case about small businesses. Some of these businesses are hopelessly inefficient. They do not need capital. If capital were pushed into them they would be taken over and their new ideas would be exploited by multinational companies which would usually strip their assets and close them down. That is happening in all of our constituencies, with good, old-fashioned businesses, where the owner dies and the son is not interested in carrying on. They either go broke and go into liquidation or are taken over by a multinational company. Often when that happens no money is put into them.
Do not let us exaggerate the situation, therefore. No group of business men has had more assistance from the Government than have the small businesses. I hope that the amendment will be rejected.

Mr. John Loveridge: I rise to support my hon. Friend the Member for Basingstoke (Mr. Mitchell), who has done so much for the smaller business sector and whose work on its behalf has been recognised on both sides of the House. We are grateful to the Government for the concessions that they have given to this sector. They show that the Government heed the arguments that are repeatedly put from Conservative Benches. In supporting these amendments, I hope that we shall persuade the Government to accept them as well.
All tax represents a seizure of someone's funds by the State, backed by threat of force. The Government have the power to take money from those who have it, and in this case corporation tax is money taken from small companies. My hon. Friend's amendment proposes that we should increase the differential between the amounts taken in tax from large and small companies from 10 per cent. to 12 per cent. That is not much, but it represents a change in direction. Does it serve the Government's purpose not to give this extra tax relief to the small firm?
When large businesses make profits they tend to put the money into mechanisation, and that cuts their requirements for labour. The same applies to State enterprises. If we are to conquer unemployment the most obvious source for that purpose is the expansion of small businesses.
Let me take the example of a small mining area in which there is a pit closure because the seams are exhausted. That might mean 200 or 300 men looking for jobs but not wanting to move away from their homes. Two or three small businesses would be more likely than anything else to meet the demand for jobs in an area which is cut off from other areas. By moving into such an area those businesses would regenerate it. Secondary businesses would spring up and the whole of the village would be brought back to life.
Retained profits, not promises of grants, motivate small businesses, more than any other factor, to move in in this way. They make it easier for these firms to expand and to help conquer unemployment. I hope that the Government will consider that aspect in considering the proposed increase in relief for the smaller business sector.
Nothing could give a greater boost to the Government's capacity to sell gilt-edged stock to meet the public sector borrowing requirement than a boom in the small business sector. The message would carry throughout the land and even overseas. A 2 per cent. differential is not a great deal, but it would give a great incentive. Those running small businesses would feel that the Government meant to help and that it was therefore worth while expanding. It is vital for us to engender the will to expand.
Small firms have a lesser propensity to import than do many of the large companies. Many of them are highly labour-intensive and when they expand they do not suck in imports on the same scale as do their larger counterparts. Thus, encouragement given to them helps the general economic capacity of the country to grow without the inhibitions caused by balance of payments difficulties.
The Government must want an increase of demand so far as they can safely

achieve it—even for electoral purposes. This is an opportunity for them not only to gain votes but to do so safely for the economy. I therefore hope that the Government will seriously consider whether this 2 per cent. reduction will benefit both them and the nation.

6.30 p.m.

Mr. Pardoe: Of course any reduction in tax might be thought extremely attractive and any reduction for small businesses might seem even more attractive for the Liberal Party. After all—this should be emphasised again and again—this is the first Budget that has given real and positive discrimination in favour of the small business sector. That discrimination was a major plank in the agreement that my party signed with the Prime Minister 15 months ago.
No one can deny that there is an astonishing list of concessions for small business men in the Budget. None of this was achieved by the Conservative Party. This is not a case in which the Government have accepted the arguments put to them from the official Opposition or by the Conservative Party's Small Business Bureau. The hon. Member for Basingstoke (Mr. Mitchell) has been talking about small businesses for as long as anyone can remember. It seems as though there has never been a time in the history of parliamentary democracy when he has not been telling people what should be done for small businesses. He has not had the blindest bit of effect on any Government so far—not even the Governments of his own party. They have never accepted one of his recommendations.
If the hon. Gentleman wants evidence of that, he does not have to take it from me; he can take it from his great guru of the business world, the right hon. Member for Leeds, North-East (Sir K. Joseph), who admitted in a speech two or three years ago that in recent years no Government of either party has done anything for small business men.

Mr. David Mitchell: Has the hon. Gentleman forgotten that the Government were defeated by the Opposition on a decision on the size of a small business for the purposes of the small business rate of corporation tax in the summer of 1974, to start with? I could list further things thereafter. Has he forgotten that?

Mr. Pardoe: If the Conservatives had got the definition of a small business right in the first place, there would have been no need for that amendment. More has been achieved for small businesses in the last 15 months than was achieved by the Conservative Party in their three and a half years in power from 1970 or in the 1950s.

Mr. Mitchell: There was the Bolton committee report.

Mr. Pardoe: The Bolton committee was established by a Labour Government and it reported to a Conservative Government, who failed to implement the majority of the recommendations.

Mr. Mitchell: No.

Mr. Pardoe: Again, the hon. Gentleman does not have to take it from me. He can take it from Mr. Bolton himself, who has admitted time and again in the last few years that little was done by the Conservative Government to implement the Bolton report.

Mr. Mitchell: Rubbish.

Mr. Pardoe: I put discrimination in favour of small businesses very high on my list of priorities, not for the ludicrous reasons advanced by the Conservative Party but mainly because it is by the small businesses that the new products are created, and it is the injection of new products into world markets that is desperately needed. It might therefore be thought that I would welcome the amendment.
However, a reduction in corporation tax for small businesses, or for any kind of business, is about the last thing that I would recommend as being any good for those businesses. As we all know, the rate of corporation tax is utterly meaningless. I do not know who is paying corporation tax. I can say that no one that I am involved with is paying it if they can possibly help it, and most of them can.
There are now so many ways of avoiding paying corporation tax that any manufacturing company which ends up paying any substantial amount of its profits over to the Government in corporation tax either has a Conservative accountant who is completely useless as its adviser, or it is not attending properly to its business

affairs. I therefore would not favour a reduction in corporation tax.
Reducing the rate would not necessarily mean reducing the revenue—it would be difficult to reduce zero—but even if we were to reduce the revenue from corporation tax by this means, the money would have to be made up from somewhere else and we should have to choose between personal income tax revenue and corporate income tax revenue.
When company finance directors sitting around in the City pat themselves on the back over how well they have been able to reduce their corporation tax bill, I tell them that all they have done is increase the personal income tax bill of themselves and their executives. Does the hon. Member for Basingstoke want personal income tax or corporate income tax brought down. Corporate income tax could go up in total and if we are to get personal income tax down, the corporate sector must start to pay a fair whack of the bill.
The book by Mervyn King and John Kay has only put the icing on the cake of what we all knew was the situation for a long time—that the corporate sector is paying a ludicrously low amount of tax and that until it pays more, as it does in other countries, individuals will have to pay too high a proportion of the total tax bill.

Mr. Denzil Davies: The hon. Member for Basingstoke (Mr. Mitchell) moved amendment no. 48, although he seemed to be more in favour of amendment no. 49, which he dealt with at slightly greater length. Perhaps I may deal with the former, nevertheless.
Amendment no. 48, seeks to reduce the rate of corporation tax for so-called small companies from 42 per cent. to 40 per cent. The cost in a full year would be about £25 million, which would have to be added to the approximately £20 million which has been provided by the increase in the relevant profit level of these companies introduced in this Finance Bill. We should then be talking of £45 million.
The hon. Member for Upminster (Mr. Loveridge) said that what was necessary was the will for expansion—that we needed to provide the basis for expansion by small companies. I agree entirely,


and that is what the corporation tax system does. That is why large and small companies pay very little corporation tax especially if they are in the manufacturing sector and if they are expanding—not only replacing their plant and machinery but increasing their business and therefore expanding their stock. If there is need for expansion, the incentive is built into the present system.
That is why we have introduced—both Governments have agreed with this—generous investment allowances, and this Government introduced the stock relief provisions which have been of great help to all companies, large and small.
Therefore, the reason that we cannot accept amendment no. 48 is partly cost—£25 million is not a small amount—but also that we believe that this reduction would not benefit those companies which are seeking to expand, certainly in the manufacturing sector, because they already pay little corporation tax. This is so not because they have sophisticated advisers. Nor is it true that companies in the Welsh valleys pay more because they cannot rely on their accountants. The reason simply is that the incentives exist and that if companies have that kind of expanding business, they get the incentives. If they are not expanding, they do not get them. I see nothing particularly wrong with that state of affairs.
The hon. Member went on to amendment no. 49—

Mr. David Mitchell: There were many service industries with the potential to provide many jobs. The Minister referred only to manufacturing industries.

Mr. Davies: I found the hon. Gentleman's argument on amendment no. 49 extraordinary. It is an interesting provision. It seems to suggest that we should ignore stock relief and investment allowance and have a flat rate corporation tax. But the hon. Gentleman did not argue that point; he said that they were an unsophisticated lot, would not exercise the option anyway, and would pay the 25 per cent. corporation tax instead of bothering with stock relief and investment allowances.
The hon. Gentleman did not argue the point—and I think that there is an argument

on this ground, although I do not agree with it—that perhaps one should look at corporation tax in terms of a flat rate and not give any allowances on stock relief. A by-product is that the service industries will be in a less advantageous position because the industry does not get stock relief or investment allowance. However, again the hon. Gentleman did not argue that point. He made nothing of the fact that the present system does not give so much help to the service industries. I believe that that is the right policy, and that we should discriminate in favour of manufacturing industry and of investment in plant and machinery.
I come to my final point on small businesses. This is the kind of debate to which we are treated by the Tory Party every year. It is a political exercise designed mainly to catch the headlines in tomorrow's newspapers and to satisfy various organisations. In reality, I believe that the decline in small businesses has little to do with taxation. It has more to do with the financial structure of this country—a structure which the Conservative Party supports and always has supported. It is partly because we have a sophisticated Stock Exchange, because we channel savings into these huge pension funds and life assurance funds, and because we have a centralised banking system which has lost most of its local roots that we have experienced a decline in small businesses—a decline that has not happened on the Continent. To pretend that by fiddling around with taxes one will help small businesses is ludicrous. As I have said, it is a Tory political exercise.
The hon. Member for Basingstoke, in discussing amendment no. 49, recognised that there may be some difficulty in the imputation rate system. He kindly said that he had in his pocket a manuscript amendment to put the matter right. So far as I can see, the imputation system of corporation tax cannot work if one has a corporation tax rate below the advance corporation tax rate. It is inherent in the imputation system of corporation tax that the corporation tax rate must be higher than the rate for ACT.
It may be possible to draft a convoluted amendment. If we examine the report of the Select Committee that dealt with corporation tax and consider the


experience of these matters in other countries, particularly France, it will be seen that what I am saying is correct. One cannot work a system of imputation corporation tax with a lower rate. That is a technical point, but it is another reason, together with all the other reasons that I have outlined, why I believe that amendment No. 49 is unacceptable.

6.45 p.m.

Mr. Peter Rees: The Minister of State injected a partisan, almost bitter, note into his speech when he said that this was an annual political exercise designed to catch the headlines. If that is the case, what was the point in appointing the Chancellor of the Duchy of Lancaster to cosset small businesses? I believe that when the history of these times is written my hon. Friend the Member for Basingstoke (Mr. Mitchell) will be recognised as having done more for small businesses than anything the Chancellor of the Duchy has done.
The Chancellor of the Duchy has attempted to catch the headlines by making soothing and platitudinous speeches on visits to representatives of small and large businesses, but for all the practical results that those visits have achieved, the right hon. Gentleman might as well have stayed home and played bridge.
The Minister of State said that the decline of small businesses had little to do with taxation. The decline is probably a complex phenomenon that we shall have to debate and go on probing over a considerable period of time. But if it had nothing to do with taxation, why has the Chancellor of the Duchy not claimed credit for various measures in the Budget? Furthermore, why has not the hon. Member for Cornwall, North (Mr. Pardoe) also claimed as a product of the Lib-Lab pact a gigantic package of fiscal reliefs for the small business sector?

Mr. Pardoe: He has.

Mr. Rees: If the hon. Gentleman has done so, he is at variance with the other arm of the Lib-Lab pact. He obviously does not have his heart in the fiscal reliefs that we are told are being introduced.
There are a number of misconceptions in this debate, largely due to the irrelevant intervention of the hon. Member for Ormskirk (Mr. Kilroy-Silk). The hon. Gentleman is always better at wearing

a bleeding heart on his sleeve than making a positive contribution to our debates.
It is right, however, that the record should be put straight, even if rather briefly. The Chief Secretary's contribution to our debate in Standing Committee on 23rd May, when he said that the estimates for 1978–79 showed that total mainstream corporation tax would be of the order of slightly over £4 billion and advance corporation tax of £1½ billion, which is a not insignificant contribution to the finances of this country. Beyond that the hon. Member for Ormskirk overlooked the amount which companies, large and small, contribute in rates, employers' national insurance surcharge and VAT. It is not true to suggest that they are free-riders in the economy.
I am sure that the Under-Secretary of State for Industry—the hon. Member for Keighley (Mr. Cryer)—who has come in to grace our debates, would not subscribe to the view that the corporate sector does not pay its fair contribution. He stirs uneasily in his seat. We know that there is a slight divergence of view between that Minister and his right hon. Friends on exactly what should be done for the small business sector.
The hon. Member for Cornwall, North made one of his usual arrogant and slightly ill-informed speeches. Obviously his back-up on this debate is not what it is on some of the others. Let us examine one misconception on the hon. Gentleman's part, namely, that none of the recommendations of the Bolton committee was implemented by a Conservative Administration. I remind the House that the first-ever Minister with special responsibility for small businesses was appointed by a Conservative Administration and that a Conservative Administration eased the close company rules.

Mr. Joel Barnett: Headline-catching again.

Mr. Rees: If any measure that benefits the small business sector is to be described as "headline catching", we shall not he able to move in any direction at all. Then, again, a Conservative Administration introduced the small firm rate of corporation tax, and introduced exemption to the smallest firms from training board levies. 'That is a not insignificant contribution by a Conservative Administration.
The Minister of State has not proved very responsive on this occasion. He believes that a figure of £25 million is too much and says that he has done enough for small companies. I am not utterly persuaded that he has addressed his mind to the implications of capital transfer tax. I do not know whether the hon. Member for Cornwall, North and his record on capital transfer tax will stand close scrutiny by those who represent and advise small companies. But there will be other occasions to debate that factor.
I turn to the interesting suggestion of my hon. Friend the Member for Basingstoke that there should be a flat rate. This is a novel suggestion.

Mr. Denzil Davies: No, it is not.

Mr. Rees: The Minister of State says that it is not novel, but he did not give the House any cogent arguments why it should be rejected.
The Opposition recognise that this subject will have to be gone into in considerable depth. I am not in any way decrying the speech made by my hon. Friend the Member for Basingstoke. I hope that the Minister of State has taken this suggestion on board and that he will ask Somerset House to look closely at it. It is not apt to be somewhat dismissive and to say that Somerset House thought about it and that there are certain difficulties. However, the Minister has not taken the House into his confidence.
I believe that this was an original suggestion, but my hon. Friend the Member for Basingstoke may recognise that this is not the moment to reach a definitive conclusion on it. I think that the whole House owes him a great debt for having yet again given us the opportunity of debating the real problems of small companies. However, I hope that on this occasion he will not feel it necessary to press the amendment to a Division.

Mr. David Mitchell: In the light of my hon. and learned Friend's suggestion, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17

ALTERATION OF PERSONAL RELIEFS

Mr. Robert Sheldon: I beg to move amendment no. 95, in page 13, line 5, at end insert—
'(1A) In section 12 of that Act (allowance for female housekeeper)—

(a) the word "female", wherever it occurs, shall be omitted;
(b) in subsection (1)(ii) after the word "above" there shall be inserted the words "or the relative is a man who has claimed and been allowed that hither relief".

(1B) In section 13(a) of that Act (allowance where claimant's mother or other female relative takes charge of his brother or sister)—

(a) for the words "either his mother, being a widow or a person living apart from her husband, or some other female relative" there shall be substituted the words "a relative";
(b) the words "mother or other" shall be omitted'.

Mr. Deputy Speaker (Mr. Oscar Murton): With this we may take Government amendments nos. 96 and 97 and the following amendments: No. 74, in page 13, line 8, at end insert—
'(3) In section 12 (widower's or widow's housekeeper) the word "female" shall be omitted wherever it occurs.'.
No. 72, in page 13, line 8, at end insert—
'(3) In section 13(a), the word "a" shall be substituted for the words "either his mother, being a widow or a person living apart from her husband, or some other female", and the words "mother or other" shall be omitted.'.
No. 155, in page 13, line 8, at end insert—
'(3) In section 15, for the word "man" there shall be substituted the words "man or woman" and for the word "his" there shall be substituted the words "his or her."'.
No. 156, in page 13, line 8, at end insert—
'(3) In section 16 of that Act (dependent relatives)—

(a) for "£100", wherever occurring, there shall be substituted "£145";
(b) in subsection (1)(b) for the word "mother" there shall be substituted the words "mother or father", for the word "husband" there shall be substituted the words "husband or wife", and for the word "woman' there shall be substituted the word "person";
(c) in subsection (2) for paragraph (a) and (b) there shall be substituted "the references in that subsection to the claimant's wife shall be construed as references to the claimant's husband";
(d) subsection (4) shall be omitted'.



No. 73, in page 13, line 8, at end insert—
(3) In section 16(2)(b) (Dependent relatives) the words 'unless she is a married woman living with her husband' shall be omitted.".
No. 75, in page 13, line 8, at end insert—
(3) In section 17 (daughter's services) after the word 'daughter' the words 'or son' shall be inserted.".
No. 78, in page 13, line 8, at end insert—
(3) In section 18 (blind person's relief), there shall be omitted the words 'throughout the year', wherever occurring, and the whole of subsections (3) and (4) below".

Mr. Robert Sheldon: These amendments take up two matters that were debated upstairs in Committee. The first contains certain elements of sex discrimination which are present in the minor personal allowances on which we undertook to consider amendments moved in Committee by the hon. Member for Braintree (Mr. Newton). My right hon. Friend, in a later comment on these matters, announced our decision to bring forward amendments on Report.
The next amendment relates to the conditions of award of the blind person's allowance on which I accepted the substance of an amendment in Committee also moved by the hon. Member for Braintree. It was defective in drafting and I undertook to come back with another amendment which is now before the House.
These amendments remove from the minor personal allowances certain sex discriminatory features which we recognise as being inappropriate. But I should point out that our decision to bring forward these amendments does not imply any change in our view on either the relevance or the importance of these minor allowances. We are still by no means convinced that these minor personal allowances are justified in present day conditions. Therefore, the amendments proposed that the relief for a housekeeper will be available for a male as well as for a female.
Regarding the child minder part of the allowance, at present the relative maintained by the claimant to look after a younger brother or sister must be either the claimant's widowed or separated mother or some other female relative. We propose to substitute the simple condition

that the person maintained should be a relative. I do not think it is likely that these proposals will affect many of the claims that come before the Inland Revenue. The cost is likely to be negligible. However, these amendments will remove the sex discriminatory conditions of the allowances which have rightly been criticised as anomalous. I am happy to bring these amendments before the House.

Mr. Newton: This is a variegated group of amendments, and it would be possible to speak on them at some length. However, in view of the wish of the House to make rapid progress I shall try to keep my remarks brief.
The second half of Amendment No. 96 simplifies the blind allowance. It is a concession to an amendment that I moved in Committee and it is very welcome. It removes two extremely convoluted subsections from the Taxes Act. It does something—if only a little—to reduce the stupefying complexity of our tax system. Not least, it does a little to help some people who unfortunately go blind in the relevant year.
Before leaving the question of the blind allowance altogether, I should like, in two sentences, to restate my view. This minuscule concession, welcome as it is, does not in any way change my view that there should have been a proper change to raise the value of the blind tax allowance. It is deplorable that it has not been altered in line with the fall in the value of money for some years. It was mean-minded of the Government to vote down in Committee an amendment that I moved to do just that.
I should like now to refer to the general thrust of the amendments. Having spent some time yesterday and in Committee upstairs advocating various measures that would reduce the tax system's discrimination against women, I am glad that my comparable pressure upstairs to remove discrimination against men has also paid off in the form of these Government amendments. However, I should draw attention—I cannot forbear to do so—to the fact that the second half of Government amendment no. 95 is identical in effect to my amendment no. 72 and that my amendment no. 72 is identical to one which I moved in Committee but which was voted down on the orders of


the Government Whips. Although the outcome of the procedure and the other steps that the Government have taken to implement amendments that I tabled upstairs is welcome, I must observe that the processes through which we have gone —first, voting down the proposal upstairs and then bringing it forward in identical terms as though the Government had just thought of it—are farcical.
I should like to ask one specific question about the dependent relative allowance which is raised by some of these amendments. It has been suggested that an inadvertent consequence of the phrasing of the Finance (Incomes Tax Reliefs) Act 1977 has been retrospectively to reduce the threshold for the income limit of the dependent relative beyond which the person providing support to that relative can gain tax relief.
The relevant phrases from section 2 of the Finance (Income Tax Reliefs) Act 1977 are:
So much of any pension or allowance … as is attributable to any general increase taking effect in the year 1977–78 shall be left out of account for all the purposes of income tax charged for that year".
That was intended to be a relieving provision. It prevented from being taxed the pensions increase that took place last November. But the income limit for the purposes of the dependent relative's allowance is defined as being £100 above the level of the basic retirement pension. It has been suggested that the consequence has been to reduce, and therefore, for many people, to destroy, the tax relief under the dependent relative's allowances for last year.
I tabled clauses on this matter which have not been selected. Indeed, I sent a letter on it to the Chief Secretary a few days ago. I should be grateful for some guidance on this matter, because I cannot believe that it was intended. If it has happened, I hope that the Government will seek some way to do something about it.
Finally, I turn to the additional amendments in my name, nos. 155 and 156. In suggesting that the Government have done something to remove the discrimination between men and women within the tax system by these amendments, it appears that the Government have fallen well short of carrying through their policy in a logical way.
Amendment no. 155 is directed to section 15 of the Income and Corporation Taxes Act 1970, which states that
A man who becomes married during a year of assessment may by notice in writing to the inspector elect that his marriage be disregarded
for certain tax purposes. If he feels that it is to his advantage not to be treated as a married man in the year in which he gets married, for reasons which I shall not attempt to discuss, he may elect to be treated in that way.
My amendment no. 155 would give the same right to a woman in the year in which she gets married. I can see no good reason why that should not be written into our law. The present provision seems a piece of petty and silly discrimination which we could quickly get rid of.
7.0 p.m.
Amendment no. 156 is directed to section 16 of the Taxes Act, the dependent relatives section to which I have already briefly referred, under which taxpayers can obtain certain relief if they are helping relatives, usually elderly or infirm, whose income is relatively modest—just a little above the basic retirement pension level. The level of these allowances is also out of date and should be increased, but they exist and it is not my purpose to make that argument tonight. My purpose is to say that section 16 is perhaps the biggest the most glaring example of discrimination remaining in the minor personal allowance clauses. In no way do the Government's amendments tackle this problem.
There is discrimination in two respects. First, there is discrimination as regards the person who is giving the help. There is a higher tax allowance—£145—for a single woman who is helping a dependent relative than there is for a married woman living with her husband or for a man, whose tax allowance is up to £100.
Secondly, there is discrimination as between different categories of people who can be helped in this way. Perhaps the clearest way in which I can put this before the House, because it is slightly complex, is to read part of the relevant paragraph of the report of the Equal Opportunities Commission on income tax and sex discrimination. It said:
The terms on which the allowance may be claimed also discriminates in favour of


female relatives. If the dependent relative is the mother of the taxpayer (or his wife), then the allowance may be claimed as soon as the mother is widowed, separated or divorced and the taxpayer is providing support. In the case of the father of a taxpayer (or his wife), he must be incapacitated by old age or infirmity before he can be regarded as dependent upon any financial support which is being given.
This section of the Taxes Act consequently makes a distinction betwen a state of dependency for each sex and, incidentally, means that the unmarried mother of a taxpayer is treated differently as she must also be aged or infirm in order to qualify for the allowance even if the taxpayer is supporting her.
The assumption appears to be that only a married woman should be regarded as incapable of self-support and that others are expected to be self-supporting unless they are physically incapable.
I appreciate that that is complex, but, however complicated it may be, it is certain that that discrimination and the discrimination between the persons providing help to dependent relatives is an antique part of our tax system which bears no relation to attitudes as between the sexes today and no relation to the Government's other amendments.
My amendment would remove this discrimination. I commend it to the House.

Mr. Lawson: My hon. Friend the Member for Braintree (Mr. Newton) raised these relatively new issues of what might be called reverse sex discrimination in Committee upstairs. He deserves the congratulations of the House not only for having raised them but for having persuaded the Government to accent most of his points. But the one which the Government have conspicuously not accepted is that in amendment no. 156, concerning the dependent relative.
It is curious that there is no explanation from the Minister why, having decided to end the discrimination against men in certain of the minor allowances, the Government apparently intend in the dependent relative allowance to perpetuate the discrimination I hope that on reflection the Minister will feel that he should accept amendment no. 156. Although I take his point that he is not convinced that the minor allowances should be kept, this is not the time to debate that matter. It is clear that so long as they remain on the statute book they should be the same for men as for women. That is a point of principle. As the Government have accepted it in

practice on a number of the allowances, it is curious that when it comes to the dependent relative allowance the Financial Secretary is unable to accept it.
The matter was first brought to my attention some time ago by a constituent who happens to be a badge messenger in the House and who is in precisely this position. He could not understand why he should be discriminated against in this way, when a woman with a dependent relative would receive a higher allowance.
The position is very unsatisfactory. I hope that, on reflection, the Minister will feel that the amendment can be accepted. If not, I advise my hon. Friend not to press the amendment to a Division. Clearly, it is a matter to which we shall want to return in our first Budget.

Mr. Robert Sheldon: Amendment no. 155 deals with the minor tax allowances. Under section 15 of the Income and Corporation Taxes Act 1970, minor allowances are not lost as a result of claiming marriage allowance late in the tax year. If his marriage takes place late in the tax year, the extra allowance—£46 a month—might be less than the tax relief that a man would be able to obtain under his existing claims as a single person for the various personal reliefs—the housekeeper or child-minder or additional personal reliefs to which he may be entitled as a widower or unmarried. Section 15 of the 1970 Act provides him with the option of forgoing his marriage allowance for the first year of marriage and retaining those allowances due to an unmarried man under sections 12, 13 or 14 of that Act.
However, since 1976–77 a married woman has been treated as single for the year in which she has married. That makes the amendment unnecessary, because she is already treated as single for the whole year in which she has married, unless her marriage takes place on 6th April. Generally, her marriage is already disregarded for tax purposes for the year of marriage, and she continues to receive any allowances to which she is entitled because she is a widow or unmarried. The wife is treated as a single person for the year in which she is married, and there is no problem.
Amendment no. 156 has as it intention the elimination of sex discrimination from


the dependent relative allowance provisions. At present it is worth £100 to a man and £145 to a single woman taxpayer. The amendment seeks to provide the same amount, £145, to all taxpayers and so to prevent any discrimination in favour of the single woman The present conditions are that the relative must be elderly or infirm unless she is the taxpayer's mother or mother-in-law and is widowed, separated or divorced for the claimant to qualify for the allowance.
I find it difficult to understand the principle behind what the hon. Member for Braintree (Mr. Newton) is seeking to achieve. I know his strong concern about widows. It is precisely to meet the problems of widows that this provision exists. Our whole attitude to widows, whose interests the hon. Gentleman pursues assiduously, is one element of sex discrimination of a kind, but a kind that we accept because it reflects the way in which other generations set their standards.
That is the problem. It may be one that is diminishing with time. As tax matters always fall to be looked at anew in the light of changing social patterns, they will come under further examination.
But the position of the widows, with which the hon. Gentleman concerns himself so much on so many occasions, is still paramount, and I am afraid that I am unable to accept his amendment.

Mr. Newton: In spite of what I regard as the profoundly unsatisfactory nature of the second half of the Financial Secretary's reply, in the light of the advice of my hon. Friend the Member for Blaby (Mr. Lawson) I shall not pursue my amendment.

Amendment agreed to.

Mr. Newton: I beg to move amendment no. 77, in page 13, line 8, at end insert—
'(3) In section 11(3) of that Act, the words after "agreement" shall be left out and the words "allowed to the person who has custody of the child" substituted.'.
I can speak with great brevity as the point is one to which I have referred earlier in our debates. It reflects the worry of the Child Poverty Action Group, and other bodies concerned with one-parent families, about what happens, on the break-up of a marriage, about the

distribution of the child tax allowances, and also about the very long delay which can arise in resolving these matters, sometimes causing very considerable hardship, when, even though the wife usually has care and custody of the children, the child tax allowance continues to be made available to the husband.
The amendment simply seeks to provide that where there is a dispute about the child tax allowances, the relevant fact should be who has custody of the child. That would automatically take the tax allowances in the direction of that person. There is genuine concern about the point outside the House, and I hope that the Minister will give it proper consideration.

Mr. Robert Sheldon: The hon. Gentleman is right in suggesting that the amendment is worthy of consideration, but I do not believe that it is worthy of acceptance by the House. It seeks to alter the rules for the apportionment of the child tax allowance where there is a double claim. It proposes that where the claimants cannot agree on how to divide the allowance, it should go fully to the person who has the custody of the child. The allowance is apportioned by the General Commissioners of Income Tax in proportion to the amounts provided by each of the claimants for the child's maintenance and education in the year concerned.
Whatever might be thought of the merits of the suggestion that the child tax allowance should go, in the event of separation, to the parent with whom the child is living, as suggested by the hon. Gentleman, his amendment refers to custody, and it really would not be satisfactory for this purpose. In a number of these cases the question of custody would not have been settled by the courts. It is not uncommon in any case nowadays, as I understand, for joint custody to be awarded.
At this very late stage in the life of our child tax allowance, there seems to be little point in legislating for a changed rule when the whole system of child tax allowance is being phased out.

Mr. Newton: On the basis of what the Financial Secretary has said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: no. 96, in page 13, line 8, at end insert—
'(3) In section 17 of that Act (allowance for services of daughter) for the word "daughter" there shall be substituted the words "son or daughter" and the like amendment shall be made in sections 18(5) and 39(1)(d) of that Act (which contain references to the allowance under section 17).

(4) In section 18 of that Act (relief for blind persons)—

(a) in subsection (1)(a) and (b) for the words "throughout the year a registered blind person" there shall be substituted the words "a registered blind person for the whole or part of the year";
(b) in subsection (2)(b) for the words "throughout the year both he and his wife were registered blind persons" there shall be substituted the words "he was a registered blind person for the whole or part of the year and his wife was also a registered blind person for the whole or part of the year";
(c) subsections (3) and (4) shall be omitted.'.—[Mr. Robert Sheldon.]

Clause 21

PAYMENTS FOR LOSS OF EMPLOYMENT ETC.

7.15 p.m.

Mr. Tim Renton: I beg to move amendment no. 7, in page 14, line 10, leave out '£10,000' and insert '£17,000'.
In the closing stages of the Committee proceedings, the Chief Secretary moved a new clause which increased the amount payable as tax-free compensation for loss of office from the £5,000 limit set in 1960 to £10,000. I subsequently moved an amendment to the new clause that the figure of £10,000 should in turn be increased to £17,000.
The Chief Secretary said at the time —he fully agreed with the point—that if full indexation were allowed for, the limit of £5,000 having originally been set in 1960, the figure should be increased to £19,000. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) also moved an amendment, virtually to that effect, suggesting that the figure be increased to £20,000.
My amendment to increase the figure to £17,000, as I said at the time, was not an attempt to index the £5,000 to an appropriate inflation-adjusted figure but specifically to deal with the case of the handful of steel workers, employees of

the British Steel Corporation, who are now having to leave the corporation and are receiving as large redundancy payments as £17,000, or even perhaps somewhat higher figures than that. The amendment to increase the figure to £17,000 led to a tied vote in Committee.
I am very well aware that £17,000 is an extremely large sum of money to pay tax-free to any person, but I think that there is a case in this instance for the Government to give special consideration to that very small body of steel workers who, through no fault of their own, are now having to leave plants where they have worked all their lives and who, because they have been there for a very long time, are receiving such high redundancy payments as £17,000.
As I said in Committee, I hold this Labour Government very much to blame for the delay that they have permitted in reaching decisions to close the high-cost plants in parts of Wales, the North of England and Scotland. I think that that delay, which was very largely due to political considerations—many of these high-cost plants were in Labour-held constituencies—has led to a great deal more human misery among the workers in the industry than would otherwise have happened.
Because of the world-wide recession in the steel industry, the British Steel Corporation is now taking the necessary and unpalatable decisions, and these men are being declared redundant and are losing their jobs at a time not only of high recession in the steel industry throughout the world but of very high unemployment in this country. They are therefore finding it very difficult to obtain alternative employment.
This emphasises the folly of political considerations—in this case the political consideration of keeping open high-cost plants—muddying necessary, although painful, industrial decisions. It would have been far better for these men if the redundancy decisions had been taken in 1974 and 1975, when unemployment was less high. But instead the unemployment and redundancy is taking place now within the British Steel Corporation. The work force has been trimmed in the last two years by about 13,000 people. With the closures which are inevitably planned for the months


ahead, at Shelton, Bilston and Glengarnoch, there will be further redundancies declared within the BSC.
I realise that the average redundancy payment is very much lower even than the figure of £10,000, which the Chief Secretary has suggested as being that which should now be the upper limit for tax-free redundancy or loss of office payments. I think that the average redundancy payment at East Moors, Ebbw Vale and Hartlepool is around £5,000. None the less, a handful of people are receiving these very high payments of £17,000 and upwards. From what we have already read in the press, it could well be that there will be more people seeking and obtaining even higher redundancy payments in future years in other BSC works.
I was told that one steel worker, when he received his redundancy cheque, looked at it and said "It is as large and fat as my bedspread." There can be no wish in this House, I suggest, when a man has worked for 25 years as a skilled worker in a steel works, and, through no fault of his own, has been declared redundant, that he should find, so to speak, that part of the feathers or padding has been removed from his bedspread, and that when he receives the fat cheque he has to pay a substantial amount of tax on some part of it.
When we got to this point in Standing Committee, the Chief Secretary assured us that, because of top slicing, a married man with two children and no other income in the year in which he received his redundancy payment would be able to receive a redundancy payment as high as £19,000 without having to pay any tax. Since the Chief Secretary told us that, we have all had an opportunity, just as I am sure he has, to look rather more closely at the figure which he gave to us.
It seems to me that there are two very definite snags to the Chief Secretary's argument. I agree with him that, indeed, for a man with no other income and two children, he should be able to receive a payment of £19,000 under section 187 of the Taxes Management Act 1970, and he would pay no tax at all if his employment were terminated in 1978–79 after the £10,000 limit comes into effect. But, as I say, there are two particular snags.
If the man in question has only modest levels of other income—for example, if he puts his redundancy payment on deposit with a building society and then gets interest from the building society on his redundancy payment, or —and perhaps this is the most particularly important point—if he takes another job after being declared redundant, for as little as £40 per week for six months in the year—he could then find himself with an increase in his total tax liabilities which was in excess of the gross amount of that extra earned income.
To put it simply, if a man earns £1,000 gross from his new job, he will pay more than £1,000 in tax on the totality of his redundancy payment plus the tax on his new earned income. I am sure the Chief Secretary will not disagree with that calculation.
That is a very great disincentive to someone who has been declared redundant seeking and taking another job. Yet surely it must be the wish of everyone in this House that such people should be encouraged and given incentives to seek and obtain other employment. They cannot possibly have such incentives if they find that for every additional pound they earn, they will be paying more than £1 in tax.
The other disadvantage to the Chief Secretary's statement is that there will he a severe deduction of pay-as-you-earn from the redundancy payment if the figure stays at the £10,000 which is now in the Bill. I remind the House that if an employee has left and the form P45 has been issued by the time the redundancy payment is made, which is the normal practice, PAYE is deducted not in accordance with the employee's code number but at a basic rate on the excess over the free amount which is being proposed by the Chief Secretary as £10,000.
In the case of an employee receiving £19,000—the Chief Secretary's example—the PAYE deduction would in fact be immediately £2,970, or £3,060 if paid before the Finance Bill 1978 receives the Royal Assent. This deduction would be made regardless of the personal circumstances of the employee and there would be no chance of the employee getting that money back until after the following 5th April.
Therefore, we have the situation in which even in the ideal example stated by the Chief Secretary, there would be a substantial PAYE deduction from these higher redundancy payments. The employee would have to go through the hoop of seeking PAYE repayment, and he is also being put in the business of taking some very complex decisions about how to handle his tax affairs. He has to decide whether to elect for top slicing. He has to decide whether his wife should declare her earned income separately if she has a job. As we all know, these are not simple matters.
The steel worker in this case would be led into the area of taking a whole series of complex tax decisions as to how to minimise the tax burden on himself. I believe we would all agree that he probably is not capable of taking them. He would need very proper and serious professional advice in order to reach the right decision.
It is therefore against that background that I think this problem can simply be dealt with by hoisting up the threshold for tax-free redundancy payments to the £17,000 level that I have suggested. This would remove this handful of retiring steel workers from having to make these very complex decisions. It could not possibly be a matter of great expense for the Government. It is against that background that I urge the House to accept the amendment.

The Chief Secretary to the Treasury (Mr. Joel Barnett): As the hon. Gentleman said, in Standing Committee we discussed the size of compensation that should be paid tax free. I hope that the House will forgive me if I do not take up his partisan points about who is to blame for the redundancies in the steel industry. I note that the hon. Gentleman's solution to relieve the misery would have been to make the redundancies earlier.
The figure of compensation included in the Bill, as the hon. Gentleman recognised, is a very substantial increase—from £5,000 previously to £10,000 this year. I note that last year the Opposition had an amendment down to increase it from £5,000 to £7,500.

Mr. Lawson: And another amendment to increase it to £10,000.

Mr. Barnett: We have now got £10,000 in the Bill. I wish that the hon. Member

would keep quiet for just one moment. He is getting terribly impatient.

Mr. Lawson: No, I am just putting the Chief Secretary right.

Mr. Barnett: We have now got £10,000 in the Bill.
As the hon. Member for Mid-Sussex (Mr. Renton) said, the main purpose behind moving the amendment was to help the steel workers. That was, indeed, the sole purpose of his case for increasing the figure to £17,000, although he recognised, fairly, that the average redundancy payments for steel workers would be very much less than £10,000. Indeed, he referred to the figure of £5,000. I agree with him that the average is very considerably less than £10,000. My understanding is that there will be very few who will receive anything like £17,000. It is, as he said, a very large sum. As he rightly said, we should not begrudge paying this amount of money to people who have been made redundant after working many years in the steel industry and made redundant through no fault of their own.
As an aside, I would say that whilst I would not disagree at all with this, I sometimes feel rather bad on behalf of my own textile workers who have also been made redundant in very large numbers over a very long period of time without getting any kind of compensation at all and certainly nothing in the region of these sums and certainly not large lump sum payments tax free. I feel I have to say that if only to put the matter into some kind of perspective. That is not to say that one in any way begrudges paying substantial redundancy payments by way of compensation to steel workers who have been made redundant in areas where the prospects of obtaining new employment are not good.
In Standing Committee I pointed out that in practice, for the vast majority of those being made redundant, because of what is known as top slicing, for a married steel worker with no other income in the year in which he is made redundant, the actual amount he would be able to receive tax free would be £19,000. The hon. Gentleman did not disagree with that. Indeed, if that is the case—and I shall come in a moment to the newspaper article that appeared to throw some doubt on whether what I


had said in Standing Committee was correct—the hon. Gentleman's amendment would mean that that married man would be able to obtain £26,000 wholly free from tax. I am bound to say that this is indeed a very large sum. If the hon. Member for Mid-Sussex said that £10,000 tax free was a very large sum, which it is, then certainly £26,000, including the top slicing, would be a very considerable sum indeed.

7.30 p.m.

Mr. Lawson: The Chief Secretary explained how top slicing relief works. Did I hear him say "if the man concerned has no other earnings in the year or no other income in the year", because that is an important distinction?

Mr. Barnett: I was coming to that point, but I shall deal with it now. I was referring, as I did in Committee, to no earnings other than from the job from which the person concerned has been made redundant. I see the hon. Member for Mid-Sussex nodding.

Mr. Lawson: What about investment?

Mr. Barnett: I shall come to that point. The hon. Member for Mid-Sussex asked what would happen if the money were deposited and the person concerned had some investment income. However, I was about to deal with the central question whether the £19,000 is correct, because some doubt has been thrown upon this by an article in The Sunday Telegraph on 9th July which stated that all of it would be taxable under section 183 of the Taxes Act. I want to assure the House, and all those concerned, that that is simply not true. The Inland Revenue has never contended that there is liability on this basis on payments in cases of genuine redundancy where the payment arises out of that redundancy. This is not something special for steel workers, because it applies across the board. It is regarded as analogous to statutory payments under the Redundancy Payments Act which are specifically exempted from tax.
As I say, there is no difference between the treatment for steel workers and that of any other group of redundant workers. I am happy to be able to give that assurance and to confirm what I said in Committee, that for a married man with no

other earnings, other than from the job in which he was made redundant, he would be able to receive £19,000 wholly free from tax.
I hope that the House will consider that that is not an unreasonable sum. In the vast majority of cases it is far in excess of anything which most steel workers will be receiving. The hon. Members for Mid-Sussex and Blaby asked what the situation would be if a person puts the money on deposit or takes another job. If he puts money on deposit, and has other investment income, that would affect the amount of tax. But equally, in many instances—and we should not be one-sided on these matters—there may well be other allowances. I quoted the £19,000 in respect of a married man with no other allowances whatever. He may well have mortgage interest relief, life assurance relief and other reliefs, which would equally be eligible and which would put the figure very much higher than £19,000.
It is seeking to have the best of every conceivable world to allow £19,000 compensation wholly free from tax and at the same time say that if it is invested there will be more tax to pay on the interest. It is true that there is, but I am not sure how one proceeds on this basis. If compensation was given at £26,000, as the amendment would do, one would have the same kind of problem on another level. All that one is doing is raising the level. The main purpose of this compensation is particularly to compensate those workers who are not able to obtain another job. If they do obtain another job, have the £10,000 wholly free from tax, and do not get the whole of the top slice of relief because they get another job, then main I do not think that that is unreasonable.
One is seeking to help the worker who has been made redundant and who has not been able to get another job. But the hon. Member for Mid-Sussex proceeded to make the further point, with which I agree—it was the major reason why we sought to raise the relief from £5,000 to £10,000—about the disincentives which there would otherwise be with regard to a man seeking another job.

Mr. Lawson: It is going round in circles.

Mr. Barnett: Of course, it is a circular argument. The hon. Member for Blaby


is quite right. But the only way one can cut it out is by raising the level of compensation so high as not to bother anyone at all. I do not think that the House would want to do that. By the relief we are giving here, at £10,000, we are providing for the vast majority of steel workers, and every other worker, who is being made redundant. With the top slicing relief one is making further provision for the comparatively small number of additional workers who might receive something in excess of £10,000. But to raise it to £17,000, so that with top slicing it would be £26,000, is something which is far in excess of anything which I could recommend to the House, and that is why I am unable to accept the amendment.

Mr. Lawson: We are now having a rather briefer debate on this clause than we had when it was first introduced upstairs. My hon. Friend the Member for Mid-Sussex (Mr. Renton) has made all the important points which require to be made on the raising of the figure from £5,000 to £10,000, as we proposed last year, although it was then voted down, and the consequences in particular for the Shelton steel workers and other steel workers who have large redundancy payments.
It is worth making two observations. First, the Chief Secretary said that very few steel workers ever get redundancy payments remotely in this league. That is a very strange thing, because in Committee the hon. Member for Stoke-on-Trent, Central (Mr. Cant), in whose constituency the Shelton steel works is located, spent a large part of his time fighting for those works to remain open. He was very exercised about this and he is a greater authority on the Shelton steel works than the Chief Secretary. He made the point that a very large number of his constituents were in precisely this position, and would be affected by the failure of the Government to increase the golden handshake, as it has been called—the payment for termination of employment on a tax-free basis higher than £10,000.
The Chief Secretary says that there are problems with regard to £10,000 and that one can get around those problems only by having a figure so high that it does not bother anyone. It is worth recalling that this figure was first fixed at £5,000 in

1960. Merely to maintain the equivalent of 1960 would require £19,000, and not the £17,000 which my hon. Friend has modestly suggested in the amendment. Therefore, it is absolutely absurd to suggest that we are proposing a figure which in real terms is in any way unprecedented. Indeed, in real terms it is lower than the 1960 figure.
It is worth asking ourselves why it is that that figure was allowed to stay for so long at £5,000 and then suddenly this year it pops up to £10,000. We know why, because up to this year the people who were affected by suddenly losing their jobs and their prospects of employment—probably at an age when it was difficult to get a new job—tended to be middle management. Perhaps due to a take-over bid, or a contraction in the industry, middle managers have been very insecure in the difficult economy with which we have been faced for the past few years. They have had a real problem of how to make ends meet. Yet the Government were not in the slightest bit interested in meeting their problems.
However, when one or two powerful trade union leaders knocked on the Treasury door and said "You are closing down the steel works where our lads are employed. They will have compensation payments of over £5,000 and will find themselves taxed on it. This is intolerable.", the Chief Secretary says "Oh well, I shall raise the figure straight away." There could be no more blatant or glaring example of the double standards employed by the present Government in dealing with hardship. They could not care less about hardship for some groups of people. They are not interested. They care only about hardship caused to members of powerful trade unions, but not all trade unions. They are not interested in small trade unions. That is why textile workers in the constituency of the Chief Secretary are not given consideration. But the members of powerful trade unions must get consideration from the Government, and that is what Socialism means. It is the grossest inequality of all.
The Chief Secretary really went round in a circle. In introducing the new clause, the Inland Revenue press release said that the increase from £5,000 to £10,000
will enable the workers who receive redundancy or severance payments to accept other jobs without being discouraged from so doing


by the prospect of being faced with substantial tax liabilities in respect of those payments.
However, my hon. Friend the Member for Mid-Sussex rightly pointed out that that is exactly what will happen.
I have had it calculated for me that if these men take up new jobs, the position is even worse than my hon. Friend suggested. If a man gets a part-time job earning perhaps £650 simply because he prefers not to be unemployed, the tax that he has to pay will be as much as £3,000. On almost any job that he may take up, the tax will be more than 100 per cent. on what he earns, the most vicious rate of tax. That is the greatest possible deterrent to taking a new job. The objective set out in the Inland Revenue press release is not met for such people as the steel workers whom we are discussing.
The Chief Secretary tried to get away with it by saying that he was concerned chiefly with the man who could not get another job. However, that was not the point originally made by the Inland Revenue and by the Chief Secretary when introducing the new clause.
There is also the point that if a man gets a redundancy payment of this kind, he will want at least to put it on deposit

and will want to get some interest not because he wants to earn money necessarily but because in these inflationary times merely to retain the value of his capital intact he has to get what is characterised as investment income but which, as the Meade report pointed out, is nothing of the sort.

The whole drift of what the Chief Secretary is suggesting is that a man in that position must not save his money, he must not get another job, and he should live off social security. That is the one way in which he will be able to draw the tax benefit which the Chief Secretary intends to confer with this clause.

That again is wholly characteristic of the present Government's approach, and it is an approach which the Opposition reject entirely. As a consequence, I advise my hon. Friend the Member for Mid-Sussex, in the light of the lamentable reply that we have had from the Chief Secretary and in the light of my hon. Friend's unanswered arguments, to press his amendment to a Division.

Question put, That the amendment be made:

The House divided: Ayes 225, Noes 264.

Division No. 262]
AYES
[7.44 p.m.


Aitken, Jonathan
Cockcroft, John
Goodlad, Alastair


Alison, Michael
Cooke, Robert (Bristol W)
Gorst, John


Amery, Rt Hon Julian
Cope, John
Gow, Ian (Eastbourne)


Atkins, Rt Hon H. (Spe[...]thorne)
Cormack, Patrick
Gower, Sir Raymond (Barry)


Atkinson, David (B'mouth, East)
Corrie, John
Gray, Hamish


Awdry, Daniel
Costain, A. P.
Grieve, Percy


Baker, Kenneth
Crouch, David
Griffiths, Eldon


Banks, Robert
Davies, Rt Hon J. (Knutsford)
Hall-Davis, A. G. F


Bell, Ronald
Dean, Paul (N Somerset)
Hamilton, Archibald (Epsom &amp; Ewell)


Bendall, Vivian
Dodsworth, Geoffrey
Hamilton, Michael (Salisbury)


Bennett, Dr Reginald (Fareham)
Douglas-Hamilton, Lord James
Hampson, Dr Keith


Benyon, W.
Drayson, Burnaby
Hannam, John


Berry, Hon Anthony
du Cann, Rt Hon Edward
Harrison, Col Sir Harwood (Eye)


Biffen, John
Dunlop, John
Harvie Anderson, Rt Hon Miss


Biggs-Davison, John
Durant, Tony
Haselhurst, Alan


Blaker, Peter
Eden, Rt Hon Sir John
Hastings, Stephen


Body, Richard
Edwards, Nicholas (Pembroke)
Havers, Rt Hon Sir Michael


Boscawen, Hon Robert
Elliott, Sir William
Hawkins, Paul


Bottomley, Peter
Emery, Peter
Hayhoe, Barney


Bowden, A. (Brighton, Kemptown)
Eyre, Reginald
Hicks, Robert


Braine, Sir Bernard
Fairgrieve, Russell
Higgins, Terence L.


Brittan, Leon
Farr, John
Hodgson, Robin


Brocklebank-Fowler, C.
Fell, Anthony
Holland, Philip


Brooke, Hon Peter
Finsberg, Geoffrey
Hordern, Peter


Brown, Sir Edward (Bath)
Fisher, Sir Nigel
Howe, Rt Hon Sir Geoffrey


Bryan, Sir Paul
Fletcher, Alex (Edinburgh N)
Howell, David (Guildford)


Buchanan-Smith, Alick
Fletcher-Cooke, Charles
Howell, Ralph (North Norfolk)


Buck, Antony
Forman, Nigel
Hunt, David (Wirral)


Budgen, Nick
Fraser, Rt Hon H. (Stafford &amp; St)
Hunt, John (Ravensbourne)


Bulmer, Esmond
Galbraith Hon T. G. D.
Hurd, Douglas


Burden, F. A.
Gardiner, George (Reigate)
Hutchison, Michael Clark


Butler, Adam (Bosworth)
Gardner, Edward (S Fylde)
Irving, Charles (Cheltenham)


Channon, Paul
Gilmour, Rt Hon Sir Ian (Chesham)
James, David


Churchill, W. S.
Gilmour, Sir John (East Fife)
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)


Clark, Alan (Plymouth, Sutton)
Glyn, Dr Alan
Jessel, Toby


Clarke, Kenneth (Rushcliffe)
Godber, Rt Hon Joseph
Jopling, Michael




Joseph, Rt Hon Sir Keith
Morris, Michael (Northampton S)
Silvester, Fred


Kaberry, Sir Donald
Morrison, Charles (Devizes)
Sinclair, Sir George


Kellett-Bowman, Mrs Elaine
Neave, Airey
Skeet, T. H. H.


Kershaw, Anthony
Nelson, Anthony
Smith, Timothy John (Ashfield)


King, Evelyn (South Dorset)
Neubert, Michael
Spence, John


King, Tom (Bridgwater)
Newton, Tony
Spicer, Jim (W Dorset)


Knight, Mrs Jill
Normanton, Tom
Spicer, Michael (S Worcester)


Knox, David
Nott, John
Sproat, Iain


Lamont, Norman
Onslow, Cranley
Stainton, Keith


Latham, Michael (Melton)
Oppenheim, Mrs Sally
Stanbrook, Ivor


Lawrence, Ivan
Osborn, John
Stanley, John


Lawson, Nigel
Page, Rt Hon R. Graham (Crosby)
Steen, Anthony (Wavertree)


Lester, Jim (Beeston)
Page, Richard (Workington)
Stewart, Ian (Hitchin)


Lewis, Kenneth (Rutland)
Pattie, Geoffrey
Stokes, John


Loveridge, John
Percival, Ian
Stradling Thomas, J.


Luce, Richard
Pink, R. Bonner
Tapsell, Peter


McAdden, Sir Stephen
Powell, Rt Hon J. Enoch
Taylor, R. (Croydon NW)


McCrindle, Robert
Prentice, Rt Hon Reg
Taylor, Teddy (Cathcart)


Macfarlane, Neil
Price, David (Eastleigh)
Tebbit, Norman


MacGregor, John
Pym, Rt Hon Francis
Thomas, Rt Hon P. (Hendon S)


MacKay, Andrew (Stechford)
Raison, Timothy
Townsend, Cyril D.


McNair-Wilson, M. (Newbury)
Rathbone, Tim
Trotter, Neville


McNair-Wilson, P. (New Forest)
Rees, Peter (Dover &amp; Deal)
Viggers, Peter


Marshall, Michael (Arundel)
Renton, Rt Hon Sir D. (Hunts)
Wakeham, John


Marten, Neil
Renton, Tim (Mid-Sussex)
Walder, David (Clitheroe)


Mates, Michael
Rhodes James, R.
Walker, Rt Hon P. (Worcester)


Mather, Carol
Ridley, Hon Nicholas
Walker-Smith, Rt Hon Sir Derek


Maude, Angus
Ridsdale, Julian
Wall, Patrick


Maudling, Rt Hon Reginald
Roberts, Wyn (Conway)
Walters, Dennis


Maxwell-Hyslop, Robin
Rossi, Hugh (Hornsey)
Warren, Kenneth


Mayhew, Patrick
Host, Peter (SE Derbyshire)
Weatherill, Bernard


Meyer, Sir Anthony
Sainsbury, Tim
Wells, John


Mills, Peter
St. John-Stevas, Norman
Whitelaw, Rt Hon William


Miscampbell, Norman
Scott, Nicholas
Winterton, Nicholas


Mitchell, David (Basingstoke)
Scott-Hopkins, James
Wood, Rt Hon Richard


Moate, Roger
Shaw, Giles (Pudsey)
Young, Sir G. (Ealing, Acton)


Monro, Hector
Shaw, Michael (Scarborough)



Moore, John (Croydon C)
Shelton, William (Streatham)
TELLERS FOR THE AYES:


More, Jasper (Ludlow)
Shepherd, Colin
Mr. Spencer Le Marchant and


Morgan, Geraint
Shersby, Michael
Mr. Peter Morrison.


Morgan-Giles, Rear-Admiral




NOES


Abse, Leo
Cowans, Harry
Fowler, Gerald (The Wrekin)


Allaun, Frank
Crawford, Douglas
Fraser, John (Lambeth, N'w'd)


Anderson, Donald
Crawshaw, Richard
Freeson, Rt Hon Reginald


Archer, Rt Hon Peter
Cronin, John
Freud, Clement


Armstrong, Ernest
Crowther, Stan (Rotherham)
Garrett, John (Norwich S)


Ashton, Joe
Cryer, Bob
Garrett, W. E. (Wallsend)


Atkins, Ronald (Preston N)
Cunningham, G. (Islington S)
George, Bruce


Atkinson, Norman (H'gey, Tott'ham)
Cunningham, Dr J. (Whiten)
Ginsburg, David


Bagier, Gordon A. T.
Dalyell, Tam
Golding, John


Bain, Mrs Margaret
Davies, Bryan (Enfield N)
Gourlay, Harry


Barnett, Guy (Greenwich)
Davies, Rt Hon Denzil
Graham, Ted


Barnett, Rt Hon Joel (Heywood)
Davies, Ifor (Gower)
Grant, John (Islington C)


Bates, Alf
Davis, Clinton (Hackney C)
Grimond, Rt Hon J.


Bean, R. E.
Deakins, Eric
Grocott, Bruce


Beith, A. J.
Dean, Joseph (Leeds West)
Hamilton, W. W. (Central Fife)


Benn, Rt Hon Anthony Wedgwood
de Freitas, Rt Hon Sir Geoffrey
Hardy, Peter


Bishop, Rt Hon Edward
Dell, Rt Hon Edmund
Harrison, Rt Hon Walter


Blenkinsop, Arthur
Dempsey, James
Hart, Rt Hon Judith


Booth, Rt Hon Albert
Doig, Peter
Hattersley, Rt Hon Roy


Boothroyd, Miss Betty
Dormand, J. D.
Hayman, Mrs Helena


Bottomley, Rt Hon Arthur
Douglas-Mann, Bruce
Healey, Rt Hon Denis


Boyden, James (Bish Auck)
Duffy, A. E. P.
Heffer, Eric S.


Bradley, Tom
Dunn, James A.
Henderson, Douglas


Bray, Dr Jeremy
Dunnett, Jack
Hooley, Frank


Brown, Hugh D. (Provan)
Dunwoody, Mrs Gwyneth
Horam, John


Brown, Robert C. (Newcastle W)
Eadie, Alex
Howell, Rt Hon Denis (B'ham, Sm H)


Brown, Ronald (Hackney S)
Edge, Geoff
Huckfield, Les


Buchan, Norman
Edwards, Robert (Wolv SE)
Hughes, Mark (Durham)


Buchanan, Richard
Ellis, Tom (Wrexham)
Hughes, Robert (Aberdeen N)


Callaghan, Rt Hon J. (Cardiff SE)
English, Michael
Hughes, Roy (Newport)


Callaghan, Jim (Middleton &amp; P)
Evans, Fred (Caerphilly)
Hunter, Adam


Canavan, Dennis
Evans, Gwynfor (Carmarthen)
Irvine, Rt Hon Sir A. (Edge Hill)


Carmichael, Neil
Evans, Ioan (Aberdare)
Irving, Rt Hon S. (Dartford)


Cartwright, John
Evans, John (Newton)
Jackson, Miss Margaret (Lincoln)


Castle, Rt Hon Barbara
Ewing, Harry (Stirling)
Janner, Greville


Clemitson Ivor
Ewing, Mrs Winifred (Moray)
Jay, Rt Hon Douglas


Cocks, Rt Hon Michael (Bristol S)
Fernyhough, Rt Hon E.
Jeger, Mrs Lena


Coleman, Donald
Fitch, Alan (Wigan)
Jenkins, Hugh (Putney)


Concannon, Rt Hon John
Flannery, Martin
John Brynmor


Cook, Robin F. (Edin C)
Fletcher, Ted (Darlington)
Johnson, James (Hull West)


Corbett, Robin
Foot. Rt Hon Michael
Johnson, Walter (Derby S)







Jones, Alec (Rhondda)
Noble, Mike
Stallard, A. W.


Jones, Dan (Burnley)
Oakes, Gordon
Steel, Rt Hon David


Judd, Frank
Ogden, Eric
Stewart, Rt Hon Donald


Kaufman, Rt Hon Gerald
O'Halloran, Michael
Stewart, Rt Hon M. (Fulham)


Kerr, Russell
Orme, Rt Hon Stanley
Stott, Roger


Kilroy-Silk, Robert
Ovenden, John
Strang, Gavin


Kinnock, Neil
Owen, Rt Hon Dr David
Summerskill, Hon Dr Shirley


Lambie, David
Padley, Walter
Swain, Thomas


Lamond, James
Palmer, Arthur
Taylor, Mrs Ann (Bolton W)


Latham, Arthur (Paddington)
Pardoe, John
Thomas, Dafydd (Merioneth)


Leadbitter, Ted
Park, George
Thomas, Jeffrey (Abertillery)


Lee, John
Parker, John
Thomas, Mike (Newcastle E)


Lestor, Miss John (Elton &amp; Slough)
Parry, Robert
Thomas, Ron (Bristol NW)


Lever, Rt Hon Harold
Pavitt, Laurie
Thompson, George


Lewis, Ron (Carlisle)
Pendry, Tom
Thorne, Stan (Preston South)


Litterick, Tom
Perry, Ernest
Thorpe, Rt Hon Jeremy (N Devon)


Loyden, Eddie
Phipps, Or Colin
Tierney, Sydney


Luard, Evan
Prescott, John
Tilley, John


McCartney, Hugh
Price, C. (Lewisham W)
Tinn, James


MacCormick, Iain
Radice, Giles
Tomlinson, John


McDonald, Dr Oonagh
Rees, Rt Hon Merlyn (Leeds S)
Tomney, Frank


McElhone, Frank
Richardson, Miss Jo
Torney, Tom


MacFarquhar, Roderick
Roberts, Albert (Normanton)
Varley, Rt Hon Eric G.


McGuire, Michael (Ince)
Roberts, Gwilym (Cannock)
Wainwright, Richard (Colne V)


MacKenzie, Rt Hon Gregor
Robertson, George (Hamilton)
Walker, Harold (Doncaster)


Maclennan, Robert
Robinson, Geoffrey
Walker, Terry (Kingswood)


McMillan, Tom (Glasgow C)
Roderick, Caerwyn
Watkins, David


McNamara, Kevin
Rodgers, George (Chorley)
Watkinson, John


Madden, Max
Rodgers, Rt Hon William (Stockton)
Watt, Hamish


Magee, Bryan
Rooker, J. W.
Weetch, Ken


Mahon, Simon
Rose, Paul B.
Weitzman, David


Mallalieu, J. P. W.
Ross, Stephen (Isle of Wight)
White, Frank R. (Bury)


Marshall, Dr Edmund (Goole)
Ross, Rt Hon W. (Kilmarnock)
Whitlock, William


Marshall, Jim (Leicester S)
Rowlands, Ted
Wigley, Dafydd


Mason, Rt Hon Roy
Ryman, John
Willey, Rt Hon Frederick


Maynard, Miss Joan
Sedgemore, Brian
Williams, Rt Hon Alan (Swansea W)


Meacher, Michael
Selby, Harry
Williams, Alan Lee (Hornch'ch)


Mellish, Rt Hon Robert
Sever, John
Williams, Sir Thomas (Warrington)


Mikardo, Ian
Shaw, Arnold (llford South)
Wilson, Gordon (Dundee E)


Millan, Rt Hon Bruce
Sheldon, Rt Hon Robert
Wilson, Rt Hon Sir Harold (Huyton)


Miller, Dr M. S. (E Kilbride)
Short, Mrs Renée (Wolv NE)
Wilson, William (Coventry SE)


Mitchell, Austin (Grimsby)
Silkin, Rt Hon John (Deptford)
Wise, Mrs Audrey


Mitchell, R. C. (Soton, Itchen)
Silkin, Rt Hon S. C. (Dulwich)
Woof, Robert


Moonman, Eric
Silverman, Julius
Young, David (Bolton E)


Morris, Rt Hon Charles R.
Skinner, Dennis



Morris, Rt Hon J. (Aberavon)
Smith, Rt. Hon. John (N Lanarkshire)
TELLERS FOR THE NOES:


Moyle, Rt. Hon. Roland
Spearing, Nigel
Mr. James Hamilton and


Murray, Rt Hon Ronald King
Spriggs, Leslie
Mr. Thomas Cox.


Newens, Stanley

Question accordingly negatived.

Mr. Nicholas Ridley: I beg to move amendment no. 118, in page 14, leave out lines 11 to 20.

Mr. Deputy Speaker: With this we may take the following amendments:
No. 122, in page 14, line 17, leave out 'a' and insert 'one quarter of the'
No. 120, in page 14, line 18 leave out 'or refrained from exercising'.
No. 119, in page 14, leave out lines 30 to 32.

Mr. Ridley: These amendments bring the House back to the vexed question of the offending subsection (2) in what was new clause no. 51 and is now clause 21.
This subsection was designed by the Government to deal with what the Chief Secretary has called "a device of rather

flagrant tax evasion". I must challenge that view to begin with. This is not a device. The device that the Chief Secretary describes is in schedule 8 of the Taxes Act. Paragraphs 3 and 4 of that schedule set out absolutely clearly the arrangements for the standard capital superannuation benefit and how these are calculated. They apply to all persons who retire early through ill health or old age, and everyone may claim that relief to offset his liability to tax on compensation of that sort—and I mean compensation of that sort and not compensation for loss of office.
Therefore, what the Chief Secretary describes as "a device" is an enshrined part of our law and has been so for a very long time. If he wishes to change it, he should give reasons for changing it and not simply say that it has been a device which people have used for tax avoidance.
8.0 p.m.
The first and the last of these amendments seek to cut out subsection (2). Amendment no. 122 reduces the deduction on behalf of standard capital superannuation benefit relief by one-quarter, which is an arbitrary figure that I have taken in order to reduce the burden imposed by the subsection. I shall not press that amendment. I was fearful that the Chair would not call any of my amendments because they were debated in Committee and I sought a device to put the point in a different way.
Amendment no. 120 seeks to return to the taxpayer the option whether he exercises his right to commute his pension. That is perfectly fair and reasonable, because if someone does not commute a pension, taxing him on the lump sum capital value, as if he had commuted the pension, will result in double taxation because he will later pay tax on the income from the commuted part of his pension. He will be paying tax both on the lump sum that he commutes and on the income that he receives from the rest of that lump sum. That is most unjust, and I therefore commend amendment no. 120.
I consider that the whole subsection is misconceived because it does not deal properly with the problem—if one accepts that there is a problem, which I do not. The Chief Secretary thinks that people should not be allowed to deduct the standard capital superannuation benefit at all and he says that whether or not they commute their pensions, they are not to be allowed this relief.
In Committee, I put to the right hon. Gentleman the point that where people do not have the right to a pension at all, or where they have a pension which is not commutable, the old provisions of the Taxes Act will continue to apply. He replied:
With respect to the hon. Gentleman, we may be at cross purposes, though I am not sure."—[Official Report, Standing Committee A, 27th June 1978; c. 1682.]
That was as far as his knowledge of the point seemed to go. We were, indeed, at cross purposes and he did not seem to understand that those people might benefit, largely because they do not have a commutable pension.
The Chief Secretary has chosen a very dubious way of achieving what he seeks

to do. I do not accept that we should do it in the first place, but if I accepted that excessive tax-free sums have been made available to people, I would then suggest that we should look at the whole matter again because it is not sensible to link the taxation of compensation for loss of office, which is a matter that we may perhaps be able to come to an agreement on, with the totally separate question whether a person commutes his pension.
The only way in which this connection can be justified is by saying that because a man receives two lump-sum payments, one as compensation and one as commutation, at the same moment, that is a nice big sum of money that those in the Inland Revenue should be able to get their mitts on.
I shall listen carefully to what the Chief Secretary has to say. I would prefer the whole subsection to be struck out, and that is the view of those outside who follow our proceedings, and particularly of various experts. If the right hon. Gentleman is not prepared to go that far, as I fear he will not be, we should at least adopt amendment no 120, which will let escape from this net those who have not commuted their pensions.

Mr. Joel Barnett: The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) knows the high regard in which I hold him, but when he accuses me of not understanding this matter, I have to say that he is either being terribly naive, which is the best accusation I can level against him, or that he knows about the abuse. He probably does not know, but the experts to whom he referred certainly know.
Let me explain the matter to the hon. Gentleman and the House so that they clearly understand what sort of abuse I am referring to. Let us take the example of a man—in order to avoid being emotive I shall not take the example of the chairman or director of a public company—who is on a salary of, say, £24,000 a year and is entitled to a pension of £16,000 a year, £4,000 of which is commutable for a lump sum of £36,000 tax-free.
Suppose that man retires after 44 years' service, waives his right to commute, and is awarded an ex gratia payment of £52,800, which will be wholly


tax-free after the standard capital superannuation benefit relief. Instead of drawing a pension of £12,000 a year and a tax-free lump sum of £36,000, he will get a pension of £16,000 a year, having not commuted, and a tax-free lump sum of £52,800. In other words, he will get the benefit twice.
I cannot believe that the hon. Member for Cirencester and Tewkesbury really understood that this could happen, but I have no doubt that the experts to whom he referred are well aware of it. That is why they want the subsection deleted. I understand that very well. That is why I recommend to the House that we should do nothing of the sort.
The standard capital superannuation benefit relief was designed to enable payment of broadly the same amount of tax-free sums as could have been received by way of tax-free lump sums under superannuation schemes. In practice, employees are entitled to commute part of their pension or to elect not to commute, in which case they are, by arrangement, awarded a tax-free, lump sum, ex-gratia payment instead. In that way, employees have got the best of both worlds—an unabated pension and unrestricted relief under the standard capital superannuation benefit. I am sure that that cannot be what the hon. Member wishes to see continue. I hope that the House does not want that.
There is not much more for me to say. The hon. Gentleman asked what happened when there was no right to commute. We have looked into this matter and we do not know of any schemes that have no such right. That is quite understandable, because if there were pension schemes that did not include the right to commute there could be no certainty that those in the scheme would be able to get a tax-free, ex-gratia award as well. That is why there are no schemes that do not include the right to commute part of the pension.
The system has been used in a way that was not intended. The subsection removes that abuse and prevents a man getting the benefit twice over. I hope that the hon. Member for Cirencester and Tewkesbury will feel that he should not press this amendment.
The hon. Gentleman says that there is no significance in the fraction of one-quarter in amendment no. 122. He said that it is arbitrary and that he does not propose to press the amendment. I do not propose to dissuade him from that course. He seemed to be seeking the support of his hon. Friends for amendment no. 120. I am bound to tell him that its purpose is not altogether clear. If the intention is to seek to distinguish between what might be called the innocent, who inadvertently fall within the subsection and those who might be called the guilty, who do so as a result of a deliberate act, the amendment seems to have it the wrong way round. The man who would automatically have received a lump sum by refraining from exercising an option not to receive it, and in fact exercises that option, is surely more guilty—I use the word "guilty" only in the context of the debate—than the man who has to exercise an option to receive a lump sum and does not do so.
Therefore, I do not think that amendment no. 120 meets what the hon. Gentleman has in mind. I hope that both he and the House will agree, having heard what I have said, that the subsection should remain part of the clause.

Mr. Lawson: The Chief Secretary has once again attempted to curdle our blood and make our hair stand on end by talking of sinister figures who are trying to introduce dreadful devices. He suggests that they are behind all the monstrous activities that he, single-handedly, is fighting to avoid. The reality is a little different from that.
My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) is right when he says that there are people outside the House who are concerned at the effect of subsection (2). I am sure that one of the bodies that he has in in mind is the National Association of Pension Funds. I have a letter from the association that was written to my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin). I am sure that the Chief Secretary will agree that the National Association of Pension Funds is not a sinister organisation. However, it is extremely concerned at the effect of the section of the clause that we are discussing.
I read an extract from the assocation's letter, which states:
We cannot see the logic of allowing a man to have a larger tax-free termination payment and a full non-commutable pension and yet prohibit this if he achieves the same package by waiving his right to commute. We believe that such an anomaly will inevitably be exploited by various devices and in the process will, we fear, lead to distortion in the design of pension scheme rules.
The association is in a position to understand these matters rather better than the right hon. Gentleman. It is saying that it is the clause that will lead to devices being written into the terms of pension schemes.
I have another letter, to which I am sure Labour Members will pay great heed, from a nationalised industry pension scheme, namely, the airways pension scheme. The letter was written to the Law Society Gazette. It explains the hardship that is caused in genuine cases as a result of this part of the clause.
In the hope of stopping what the right hon. Gentleman refers to as a device, meaning that something perfectly legal has been done and some individuals have received larger amounts by way of tax-free payment on retirement after many years of service under the standard capital superannuation benefit system, he has introduced a clause which is generous in the first part but which in the second part will hit hard many who are perfectly genuine and have not attempted to introduce any sort of device.
8.15 p.m.
I have in mind those who find themselves redundant. They think that they will receive the tax-free benefit under the standard capital superannuation benefit system that will give them a tax-free benefit reflecting many years of service. As the right hon. Gentleman is well aware, it is the only way in which they can obtain large sums. However, they will be told that because they have a commutable pension in addition, which they do not choose to commute, the amount of tax-free benefit that they can obtain is drastically reduced. Therefore, they will be very much worse off.
It is intolerable that the right hon. Gentleman should take this crude stand and cause many members of pension funds to lose a right that they have long considered to be theirs. They have reason to expect that at the end of the day they will receive the tax-free standard capital

superannuation benefit based on their number of years' service. They will suddenly find that that right, which has been in the tax laws for a long time, has been removed through no fault of theirs. They will find that that has happened although they have committed no abuse of the system. That is wholly unjustified.
If a person does not commute the pension, he receives no capital sum. If he receives no additional capital sum, why should his tax position be adjusted as if he had received such a sum? When he receives the pension, which is not commuted, he pays the full income tax on the pension. Where is the tax dodge? There is no dodge for the normal individual, and the right hon. Gentleman knows that.
In his hysteria to discover a tax avoidance device under every stone and under every part of our tax law the right hon. Gentleman is inflicting wanton hardship on members of pension funds, as my hon. Friend the Member for Cirencester and Tewkesbury rightly observed.
There is one matter of regret. I do not normally comment on the selection of amendments for debate, but had amendment no. 167, which appeared in page 2856 of yesterday's Order Paper, been selected, we should wish to divide on it. However, as it has not been selected the only sensible course—I hope that my hon. Friend will take it—is to press amendment no. 118 to a Division.

Mr. J. Enoch Powell: I am sure that the Chief Secretary is seized of the reason for anxiety on the part of many who have studied the clause and who are as anxious as he is to prevent the abuse of the tax system that he has described.
We understand that the scheme which he described, which is a purely collusive scheme to enable a man to receive a larger tax-free benefit by the form in which it is paid, falls within the definition contained in subsection (2). What we do not see is that nothing else but schemes of that sort can fall within the definition. I am not trying to put the right hon. Gentleman under the difficulty of proving a negative, but it is a difficulty that he is under in using the method contained in the subsection to attempt to prevent the form of tax avoidance that he has described.
We can imagine circumstances in which the form of words would cover transactions that did not confer an additional tax-free benefit upon the recipient of the lump sum but that were entered into for good and sufficient reasons by both parties. I shall give an example. It may not be a good one, but it will illustrate what I mean.
Let us suppose that a man had a right to commute part of his pension into a lump sum upon retirement but that he forwent his right to do that for a number of years, on consideration that at the end of that period he would receive a lump sum representing the additional value only, however calculated, of the period for which he had forgone receipt of the lump sum.
I simply offer that as a case which I think would fall within the definition of the clause but which could be perfectly honest and involve no extra, unintended, tax-free benefit. There is an onus upon the Chief Secretary, if he wishes the subsection to be accepted, reasonably to satisfy the House that this form of words could bite only where the benefit thus received was of the nature of the £52,000 in his illustration. I do not think that I am the only one to whom that is not yet clear.

Mr. Joel Barnett: I shall try to deal with the example given by the right hon. Member for Down, South (Mr. Powell). He said correctly that we are dealing with collusive acts. I do not refer to such people as sinister. They properly take advantage of the situation to obtain a full pension and the tax-free compensation. We are seeking to stop that in this subsection.
The right hon. Member for Down, South gave the example of the person who has the right to commute part of his pension and who forgoes that right for a period of years, but not completely. Therefore, the lump sum that the person receives is a smaller figure than in the example that I gave. That would be paid later. There is no extra unintended benefit in this case.
The point that the right hon. Member is missing is that the person in question will still receive the full tax-free benefit that is available to anybody under the terms of the clause. He will still be eligible.
But, without this subsection, in addition to receiving the tax-free ex gratia payment, that person will also be able to receive his full pension, having forgone the right to commute part of it. Such a person will not lose anything. That is my understanding of the situation. The person in the example given by the right hon. Member would not lose anything. He would still receive the full amount of tax-free compensation as anybody else under the terms of the clause. If I am wrong, I shall be happy to look at it again. That is my understanding of the way in which the clause works.

Mr. Ridley: The Chief Secretary attempted to savage me with the charge of naivety. I do not resent that too much but I must savage him first with the charge of being devious.
This provision was introduced in a new clause in Committee. We all thought that there was some relief. Indeed, there is the relief to the extent of £10,000. But for many people this is a large diminution and as much as £30,000 can he brought into tax as a result of the subsection.
My first question is almost one for you, Mr. Deputy Speaker. Is this increase in the tax burden on certain people within the Ways and Means Resolution? I have seen nothing about it. I think that it is without the Ways and Means Resolution. It is wrong for the Government to seek to bring in extra taxation at this time.
The Chief Secretary presented this proposal as an anti-avoidance device. He called it a device, but now he says that it is nothing of the sort. It is a piece of egalitarian taxation. It is designed to penalise heavily those who have been legally and properly receiving large tax-free payments on retirement. That might be a good thing to do, but the Chief Secretary should have presented it to the House as an increase in taxation on those who commute their pensions or do not commute them.
The Chief Secretary agrees, having not understood in Committee, that if a pension is not commutable, the old "device" as he called it, might continue. He says that in that case it does not matter because we know of hardly any pensions which are not commutable. But there are several in existence.
From now on, every tax avoidance expert in the country will be devising non-commutable pension rights in order to get round this proposition. Even I can see that—and I am naive, according to the Chief Secretary.
We are not arguing with the Chief Secretary about the principle. We are asking him to have a look at this with great care. Let him take the proposition away and work out the proper arrangements. It is clear that not only does he not understand it but, more important, he has got it wrong. The Government would be wise to accept the amendment and to spend the next few weeks of their existence

trying to work out fair arrangements which are not easily avoided and which can be the subject of consultation with the pension funds and others who practise in this area.

Unless the Chief Secretary is about to jump to his feet and accept the amendment, I hope that my right hon. and hon. Friends will press it in the Division Lobbies.

Question put, That the amendment be made:—

The House divided: Ayes 229, Noes 274.

Division No.263]
AYES
[8.26 p.m.


Aitken, Jonathan
Finsberg, Geoffrey
Knight, Mrs Jill


Alison, Michael
Fisher, Sir Nigel
Knox, David


Amery, Rt Hon Julian
Fletcher, Alex (Edinburgh N)
Lamont, Norman


Atkins, Rt Hon H. (Spelthorne)
Fletcher-Cooke, Charles
Latham, Michael (Melton)


Atkinson, David (B'mouth, East)
Fox, Marcus
Lawrence, Ivan


Baker, Kenneth
Fraser, Rt Hon H. (Stafford &amp; St)
Lawson, Nigel


Banks, Robert
Galbraith Hon T. G. D.
Lester, Jim (Beeston)


Bell, Ronald
Gardiner, George (Reigate)
Lewis, Kenneth (Rutland)


Bendall, Vivian
Gardner, Edward (S Fylde)
Lloyd, Ian


Bennett, Dr Reginald (Fareham)
Gilmour, Rt Hon Sir Ian (Chesham)
Loveridge, John


Benyon, W.
Gilmour, Sir John (East Fife)
Luce, Richard


Biffen, John
Glyn, Dr Alan
McAdden, Sir Stephen


Biggs-Davison, John
Godber, Rt Hon Joseph
McCrindle, Robert


Blaker, Peter
Goodhart, Philip
Macfarlane, Neil


Body, Richard
Goodlad, Alastair
MacGregor, John


Boscawen, Hon Robert
Gorst, John
MacKay, Andrew (Stechford)


Bottomley, Peter
Gow, Ian (Eastbourne)
McNair-Wilson, M. (Newbury)


Bowden, A. (Brighton, Kemptown)
Gower, Sir Raymond (Barry)
McNair-Wilson, p. (New Forest)


Braine, Sir Bernard
Grant, Anthony (Harrow C)
Marshall, Michael (Arundel)


Brittan, Leon
Gray, Hamish
Marten, Neil


Brocklebank-Fowler, C.
Grieve, Percy
Mates, Michael


Brooke, Hon Peter
Griffiths, Eldon
Mather, Carol


Brotherton, Michael
Grylls, Michael
Maude, Angus


Brown, Sir Edward (Bath)
Hall-Davis, A. G. F
Maudling, Rt Hon Reginald


Bryan, Sir Paul
Hamilton, Archibald (Epsom &amp; Ewell)
Maxwell-Hyslop, Robin


Buchanan-Smith, Alick
Hamilton, Michael (Salisbury)
Mayhew, Patrick


Buck, Antony
Hampson, Dr Keith
Meyer, Sir Anthony


Budgen, Nick
Hannam, John
Mills, Peter


Bulmer, Esmond
Harrison, Col Sir Harwood (Eye)
Miscampbell, Norman


Burden, F. A.
Harvie Anderson, Rt Hon Miss
Mitchell, David (Basingstoke)


Butler, Adam (Bosworth)
Haselhurst, Alan
Moate, Roger


Carlisle, Mark
Hastings, Stephen
Monro, Hector


Channon, Paul
Havers, Rt Hon Sir Michael
Moore, John (Croydon C)


Churchill, W. S.
Hawkins, Paul
More, Jasper (Ludlow)


Clark, Alan (Plymouth, Sutton)
Hayhoe, Barney
Morgan, Geraint


Clarke, Kenneth (Rushcliffe)
Hicks, Robert
Morris, Michael (Northampton S)


Cockcroft, John
Higgins, Terence L.
Morrison, Charles (Devizes)


Cooke, Robert (Bristol W)
Hodgson, Robin
Morrison, Hon Peter (Chester)


Cope,John
Holland, Philip
Neave, Airey


Cormack, Patrick
Hordern, Peter
Nelson, Anthony


Corrie, John
Howe, Rt Hon Sir Geoffrey
Neubert, Michael


Costain, A. P.
Howell, Ralph (North Norfolk)
Newton, Tony


Crouch, David
Hunt, David (Wirral)
Normanton, Tom


Davies, Rt Hon J. (Knutsford)
Hunt, John (Ravensbourne)
Onslow, Cranley


Dean, Paul (N Somerset)
Hurd, Douglas
Oppenheim, Mrs Sally


Dodsworth, Geoffrey
Hutchison, Michael Clark
Osborn, John


Douglas-Hamilton, Lord James
Irving, Charles (Cheltenham)
Page, Rt Hon R. Graham (Crosby)


Drayson, Burnaby
James, David
Page, Richard (Workington)


du Cann, Rt Hon Edward
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Pattie, Geoffrey


Durant, Tony
Jessel, Toby
Percival, Ian


Eden, Rt Hon Sir John
Jopling, Michael
Pink, R. Bonner


Edwards, Nicholas (Pembroke)
Joseph, Rt Hon Sir Keith
Powell, Rt Hon J. Enoch


Elliott, Sir William
Kaberry, Sir Donald
Prentice, Rt Hon Reg


Emery, Peter
Kellett-Bowman, Mrs Elaine
Price, David (Eastleigh)


Eyre, Reginald
Kershaw, Anthony
Pym, Rt Hon Francis


Fairgrieve, Russell
Kimball, Marcus
Raison, Timothy


Farr, John
King, Evelyn (South Dorset)
Rathbone, Tim


Fell, Anthony
King, Tom (Bridgwater)
Rees, Peter (Dover &amp; Deal)




Renton, Rt Hon Sir D. (Hunts)
Smith, Timothy John (Ashfield)
Vaughan, Dr Gerard


Renton, Tim (Mid-Sussex)
Spence, John
Viggers, Peter


Rhodes James, R.
Spicer, Jim (W Dorset)
Wakeham, John


Rhys Williams, Sir Brandon
Spicer, Michael (S Worcester)
Walder, David (Clitheroe)


Ridley, Hon Nicholas
Sproat, Iain
Walker, Rt Hon P. (Worcester)


Ridsdale, Julian
Stainton, Keith
Walker-Smith, Rt Hon Sir Derek


Roberts, Wyn (Conway)
Stanbrook, Ivor
Wall, Patrick


Rossi, Hugh (Hornsey)
Stanley, John
Walters, Dennis


Rost, Peter (SE Derbyshire)
Steen, Anthony (Wavertree)
Warren, Kenneth


St. John-Stevas, Norman
Stewart, Ian (Hitchin)
Weatherill, Bernard


Scott, Nicholas
Stokes, John
Wells, John


Scott-Hopkins, James
Stradling Thomas, J.
Whitelaw, Rt Hon William


Shaw, Giles (Pudsey)
Tapsell, Peter
Winterton, Nicholas


Shaw, Michael (Scarborough)
Taylor, R. (Croydon NW)
Wood, Rt Hon Richard


Shelton, William (Streatham)
Taylor, Teddy (Cathcart)
Young, Sir G. (Ealing, Acton)


Shepherd, Colin
Tebbit, Norman



Shersby, Michael
Thomas, Rt Hon P. (Hendon S)
TELLERS FOR THE AYES:


Silvester, Fred
Townsend, Cyril D.
Mr. Spencer Le Marchant and


Sinclair, Sir George
Trotter, Neville
Mr. Anthony Berry


Skeet, T. H. H.
van Straubenzee, W. R.



NOES


Abse Leo
Douglas-Mann, Bruce
Johnson, James (Hull West)


Allaun, Frank
Duffy, A. E. P.
Johnson, Walter (Derby S)


Anderson, Donald
Dunn, James A.
Jones, Alec (Rhondda)


Archer, Rt Hon Peter
Dunnett, Jack
Jones, Dan (Burnley)


Armstrong, Ernest
Dunwoody, Mrs Gwyneth
Judd, Frank


Ashton, Joe
Eadie, Alex
Kaufman, Rt Hon Gerald


Atkins, Ronald (Preston N)
Edge, Geoff
Kerr, Russell


Atkinson, Norman (H'gey, Tott'ham)
Edwards, Robert (Wolv SE)
Kilroy-Silk, Robert


Bagier, Gordon A. T.
Ellis, Tom (Wrexham)
Kinnock, Neil


Bain, Mrs Margaret
English, Michael
Lambie, David


Barrett, Guy (Greenwich)
Evans, Fred (Caerphilly)
Lamond, James


Barnett, Rt Hon Joel (Heywood)
Evans, Gwynfor (Carmarthen)
Latham, Arthur (Paddington)


Bates, Alf
Evans, Ioan (Aberdare)
Leadbitter, Ted


Bean, R. E.
Evans, John (Newton)
Lestor, Miss Joan (Eton &amp; Slough)


Beith, A. J.
Ewing, Harry (Stirling)
Lever, Rt Hon Harold


Benn, Rt Hon Anthony Wedgwood
Ewing, Mrs Winifred (Moray)
Lewis, Ron (Carlisle)


Bishop, Rt Hon Edward
Fernyhough, Rt Hon E.
Litterick, Tom


Blenkinsop, Arthur
Fitch, Alan (Wigan)
Loyden, Eddie


Booth, Rt Hon Albert
Flannery, Martin
Luard, Evan


Boothroyd, Miss Betty
Fletcher, Ted (Darlington)
Lyons, Edward (Bradford W)


Bottomley, Rt Hon Arthur
Foot, Rt Hon Michael
McCartney, Hugh


Boyden, James (Bish Auck)
Fowler, Gerald (The Wrekin)
MacCormick, Iain


Bradley, Tom
Fraser, John (Lambeth, N'w'd)
McDonald, Dr Oonagh


Bray, Dr Jeremy
Freeson, Rt Hon Reginald
McElhone, Frank


Brown, Hugh D. (Provan)
Freud, Clement
MacFarquhar, Roderick


Brown, Robert C. (Newcastle W)
Garrett, John (Norwich S)
McGuire, Michael (Ince)


Brown, Ronald (Hackney S)
Garrett, W. E. (Wallsend)
MacKenzie, Rt Hon Gregor


Buchan, Norman
George, Bruce
Maclennan, Robert


Buchanan, Richard
Gilbert, Rt Hon Dr John
McMillan, Tom (Glasgow C)


Callaghan, Rt Hon J. (Cardiff SE)
Ginsburg, David
McNamara, Kevin


Callaghan, Jim (Middleton &amp; P)
Golding, John
Madden, Max


Caravan, Dennis
Gourlay, Harry
Magee, Bryan


Carmichael, Neil
Grant, John (Islington C)
Mahon, Simon


Carter-Jones, Lewis
Grimond, Rt Hon J.
Mallalieu, J. P. W.


Cartwright, John
Grocott, Bruce
Marshall, Dr Edmund (Goole)


Castle, Rt Hon Barbara
Hamilton, James (Bothwell)
Marshall, Jim (Leicester S)


Clemitson, Ivor
Hamilton, W. W. (Central Fife)
Mason, Rt Hon Roy


Cocks, Rt Hon Michael (Bristol S)
Hardy, Peter
Maynard, Miss Joan


Concannon, Rt Hon John
Harrison. Rt Hon Walter
Meacher, Michael


Cook, Robin F. (Edin C)
Hart, Rt Hon Judith
Mellish, Rt Hon Robert


Corbett, Robin
Hattersley, Rt Hon Roy
Mikardo, Ian


Cowans, Harry
Hayman, Mrs Helene
Millan, Rt Hon Bruce


Cox, Thomas (Tooting)
Healey, Rt Hon Denis
Miller, Dr M. S. (E Kilbride)


Craigen, Jim (Maryhill)
Heffer, Eric S.
Mitchell, Austin (Grimsby)


Crawford, Douglas
Henderson, Douglas
Mitchell, R. C. (Soton, Itchen)


Crawshaw, Richard
Hooley, Frank
Molloy, William


Cronin, John
Horam, John
Moonman, Eric


Crowther, Stan (Rotherham)
Howell, Rt Hon Denis (B'ham, Sm H)
Morris, Rt Hon Charles R.


Cryer, Bob
Hoyle, Doug (Nelson)
Morris, Rt Hon J. (Aberavon)


Cunningham, Dr J. (Whiteh)
Huckfield, Les
Moyle, Rt. Hon. Roland


Dalyell, Tam
Hughes, Mark (Durham)
Murray, Rt Hon Ronald King


Davidson, Arthur
Hughes, Robert (Aberdeen N)
Newens, Stanley


Davies, Rt Hon Denzil
Hughes, Roy (Newport)
Noble, Mike


Davies, Ifor (Gower)
Hunter, Adam
Oakes, Gordon


Davis, Clinton (Hackney C)
Irvine, Rt Hon Sir A. (Edge Hill)
Ogden, Eric


Deakins, Eric
Irving, Rt Hon S. (Dartford)
O'Halloran, Michael


Dean, Joseph (Leeds West)
Jackson, Miss Margaret (Lincoln)
Orme, Rt Hon Stanley


de Freitas, Rt Hon Sir Geoffrey
Janner, Greville
Ovenden, John


Dell, Rt Hon Edmund
Jay, Rt Hon Douglas
Owen, Rt Hon Dr David


Dempsey, James
Jeger, Mrs Lena
Padley, Walter


Doig, Peter
Jenkins, Hugh (Putney)
Palmer, Arthur


Dormand, J. D.
John Brynmor
Pardoe, John







Park, George
Shaw, Arnold (llford South)
Tomney, Frank


Parker, John
Sheldon, Rt Hon Robert
Torney, Tom


Parry, Robert
Short, Mrs Renée (Wolv NE)
Tuck, Raphael


Pavitt, Laurie
Silkin, Rt Hon John (Deptford)
Varley, Rt Hon Eric G.


Pendry, Tom
Silkin, Rt Hon S. C. (Dulwich)
Wainwright, Richard (Colne V)


Perry, Ernest
Silverman, Julius
Walker, Harold (Doncaster)


Phipps, Dr Colin
Skinner, Dennis
Walker, Terry (Kingswood)


Prescott, John
Smith, Rt. Hon. John (N Lanarkshire)
Watkins, David


Price, C. (Lewisham W)
Snape, Peter
Watkinson, John


Price, William (Rugby)
Spearing, Nigel
Watt, Hamish


Radice, Giles
Spriggs, Leslie
Weetch, Ken


Rees, Rt Hon Merlyn (Leeds S)
Stallard, A. W.
Weitzman, David


Reid, George
Steel, Rt Hon David
Wellbeloved, James


Richardson, Miss Jo
Stewart, Rt Hon Donald
White, Frank R. (Bury)


Roberts, Albert (Normanton)
Stewart, Rt Hon M. (Fulham)
Whitlock, William


Roberts, Gwilym (Cannock)
Stott, Roger
Wigley, Dafydd


Robertson, George (Hamilton)
Strang, Gavin
Willey, Rt Hon Frederick


Robinson, Geoffrey
Summerskill, Hon Dr Shirley
Williams, Rt Hon Alan (Swansea W)


Roderick, Caerwyn
Swain, Thomas
Williams, Alan Lee (Hornch'ch)


Rodgers, George (Chorley)
Taylor, Mrs Ann (Bolton W)
Williams, Sir Thomas (Warrington)


Rodgers, Rt Hon William (Stockton)
Thomas, Dafydd (Merioneth)
Wilson, Gordon (Dundee E)


Rooker, J. W.
Thomas, Jeffrey (Abertillery)
Wilson, Rt Hon Sir Harold (Huyton)


Rose, Paul B
Thomas, Mike (Newcastle E)
Wilson, William (Coventry SE)


Ross, Stephen (Isle of Wight)
Thomas, Ron (Bristol NW)
Wise, Mrs Audrey


Ross, Rt Hon W. (Kilmarnock)
Thompson, George
Woof, Robert


Rowlands, Ted
Thorne, Stan (Preston South)
Young, David (Bolton E)


Ryman, John
Thorpe, Rt Hon Jeremy (N Devon)



Sandelson, Neville
Tierney, Sydney
TELLERS FOR THE NOES:


Sedgemore, Brian
Tilley, John
Mr. Ted Graham and


Selby, Harry
Tinn, James
Mr. Donald Coleman.


Sever, John
Tomlinson, John

Question accordingly negatived.

Schedule 4

SCHEDULE D: RELIEF FOR ABSENCE ON BUSINESS ABROAD

Mr. Robert Sheldon: I beg to move amendment no. 11, in page 67, line 13, after '1975', insert
'and the Social Security (Northern Ireland) Act 1975'.
This is a consequential amendment to bring into line for those in Northern Ireland the treatment of relief for absences abroad in calculating national insurance contributions.

Mr. Powell: Will the Minister satisfy me on a point of curiosity? Incidentally, I am not certain that he was accurate to say that this is a consequential amendment. It is certainly a necessary amendment because the same enactment was made separately for Northern Ireland and for the rest of the United Kingdom. Therefore, it is consequential in the sense only that it is consequential on the Bill itself.
However, it is not for the purpose of that quibble that I wish to trouble the Financial Secretary but to draw his attention to the fact that reference to the same paragraph of the same schedule to the same Social Security Act 1975 occurs in the Bill. I refer to page 19, line 38, clause 26(7)(c).
I cannot understand why in the one place where that paragraph is mentioned we have to accommodate side by side with it the equivalent Northern Ireland provision, whereas we can rest content in clause 26(7)(c) with referring to the matter there without equally matching it with a reference to the corresponding Northern Ireland enactment. There may be a reason, but it has escaped not only myself but other more expert observers of these matters.
If the Minister comes to the conclusion or receives advice to the effect that there should have been a corresponding amendment in clause 26(7), a difficulty arises in that we are on Report, which is our last opportunity for amendment. I dare say that the resources of Government are equal to dealing with this situation. It will be a pity if a reference to the appropriate Northern Ireland legislation which should have been in the Finance Bill is missing, because it might have a prejudicial effect on taxpayers in Northern Ireland.

Mr. Robert Sheldon: I take the right hon. Gentleman's comments about this being a necessary rather than a consequential amendment. Perhaps in those cases where we are legislating separately for Northern Ireland, and where a piece of legislation that is suitable for the rest of the United Kingdom automatically needs to find its echo in the legislation of


Northern Ireland, we loosely refer to them as "consequential" amendments.
The right hon. Gentleman asks about the difference between clause 26 and this amendment. Here we need to refer explicitly to schedule 4 of the Northern Ireland legislation because it requires a textual amendment to the Northern Ireland provisions. I understand that this is not necessary in respect of clause 26.

Amendment agreed to.

Clause 24

FARMING AND MARKET GARDENING: RELIEF FOR FLUCTUATING PROFITS

8.45 p.m.

Mr. Robert Sheldon: I beg to move amendment no. 55, in page 16, leave out lines 28 to 31 and insert:
'(4) No claim shall be made under this section—'.

Mr. Deputy Speaker (Sir Myer Galpern): With this amendment we may take Government amendment no. 56.

Mr. Sheldon: These amendments meet two points concerning the time limit for claims to the averaging provisions for farmers. In Committee, my right hon. Friend accepted in principle an amendment moved by the right hon. Member for Crosby (Mr. Page) and said that we would be prepared to table an amendment on Report to meet its objective.
The new subsection introduced by amendment no. 56 is concerned with situations where the profits for the year are adjusted either up or down for reasons other than averaging. That can take place for example when there has been an error or an alteration in circumstances or the inspector perhaps discovers additional profits to be assessed. In that event, the averaged profits are to be ignored and the adjustment is to be made on the basis of the gross profits as originally computed. The new subsection provides for the farmer to be able to claim for averaging the adjusted profits as long as the claim is made within one year of the end of the year of assessment.
There is a second feature of these amendments which was not raised in

Committee but has been explained in representations since. The problem is that by the time the claim for averaging is made it could be too late to do anything about existing claims, for example, in respect of stock relief or capital allowances. Under the present rules, it would not be possible to change or to withdraw the original claim for relief on the profits after they have been averaged. As the effect of averaging is to change the profit figure on which the original claim was based, it is right that the taxpayer should be allowed to start again on the basis of the new figure. I hope that these amendments commend themselves to the House.

Mr. Graham Page: I am obliged to the Financial Secretary for improving on the amendment that I moved in Committee and for bringing his amendment forward today.

Amendment agreed to.

Amendment made: no. 56, in page 17, line 43, at end insert—
'(8) Any claim under this section shall be made by notice in writing given to the inspector not later than two years after the end of the second of the years of assessment to which the claim relates but any such further claim as is mentioned in subsection (5)(c) above shall not be out of time if made before the end of the year of assessment following that in which the adjustment is made.
(9) Where a person makes a claim under this section in respect of any year of assessment, any claim by him for relief for that year under any other provision of the Income Tax Acts—

(a) shall not be out of time if made before the end of the period in which the claim under this section is required to be made; and
(b) if already made, may be revoked or amended before the end of that period;

but no claim shall by virtue of this subsection he made, revoked or amended after the determination of the claim under this section.'.—[Mr. Robert Sheldon.]

Clause 25

DIVERS AND DIVING SUPERVISORS

Mr. Graham Page: I beg to move amendment no. 178, in page 18, line 30, after 'section', insert
'does not apply for the years 1978–79 or 1979–80 if the person performing the duties so elects but otherwise it'.
Clause 25 deals with divers and diving supervisors who logically should be


charged to tax under schedule E. The clause is intended to benefit divers and diving supervisors by charging them to tax under schedule D instead of under schedule E. Generally, that will be of benefit to the taxpayer.
However, one can think of cases where it may not be of benefit at all. It may be better for the diver or the diving supervisor so charged to stay with schedule E, at least for a time. I think that he should be given the chance to make a choice. The amendment would give him the chance to make that choice for the two years 1978–79 and 1979–80 if he elects to do so. It follows from that, although it is not in the amendment, that the election would have to be by proper notice in writing and so on. This is a simple amendment to tidy up the clause.

Mr. Robert Sheldon: The right hon. Member for Crosby (Mr. Page) pointed out that the purpose of the amendment was to give those covered by the clause the right to elect to remain chargeable to tax under schedule E. We discussed this matter in Committee upstairs. The right hon. Gentleman explained that the reason for providing for elections for the schedule E basis was that, if a diver's earnings in 1978–79 were above the normal, he could be affected to his disadvantage by being forced, for tax purposes, to start a trade on 6th April this year.
This is caused by the provisions of schedule D, under which the profits of the opening year can form the basis of assessment for the first three years of assessment. That is the argument that the right hon. Gentleman used.
The present law enables the taxpayer to choose to have the assessments for both the second and third years of the trade based on the profits that arise in those years. The amendment would provide that if a diver has a particularly successful year this year—and this could well happen—he would be able, in the succeeding years, to elect to pay tax on the actual profits arising in each of those years.
The taxpayer could, of course, begin his trade in a year—I am talking about the general case now—when he knew

that his profit would be particularly low. In that event the profits of that abnormally low year would form the basis of the tax assessment for the succeeding two years, and there is no provision for the Revenue to increase the profits figure to that which has arisen each year.
I think that the provision in the legislation is reasonable, and I hope that on reflection the right hon. Gentleman will agree that that is so.

Mr. Graham Page: It seems to me that the Financial Secretary is trying to get it both ways. He is trying to get advantage out of the clause where there is disadvantage to those who he intends to benefit by the clause. Because of what the right hon. Gentleman said I cannot ask leave to withdraw the amendment. If the Government feel that they cannot accept it, let them negative it.

Amendment negatived.

Clause 26

FURTHER RELIEF FOR LOSSES IN EARLY YEARS OF TRADE

Mr. Denzil Davies: I beg to move amendment no. 4, in page 20, line 25 at end insert—
'(10) This section applies, with the necessary modifications, in relation to a profession or vocation as it applies in relation to a trade.'.
The amendment fulfils an undertaking given in Committee by my right hon. Friend the Chief Secretary to achieve the purpose of an amendment tabled by the right hon. Member for Crosby (Mr. Page)—to extend what is now clause 26, which deals with the carry-back relief for losses in the early years of trade to professions and vocations. My right hon. Friend recognised that there were sometimes problems of definition whether a particular activity constituted a profession or a trade in mixed businesses. The amendment fulfils that undertaking.

Mr. Graham Page: I am obliged to the Minister for tabling the amendment following the undertaking given in Committee. At the moment I am scoring two to one.

Amendment agreed to.

Clause 27

DEALINGS IN COMMODITY FUTURES: WITHDRAWAL OF Loss RELIEF

Mr. Trotter: I beg to move amendment no 123, in page 20, line 38, after "from", insert "the disposal of".

Mr. Deputy Speaker: With this we are to take amendment no. 124, in page 21, line 2, at end insert:
'(4) The following provisions shall have effect where in pursuance of this section a person furnishes to the Board particulars of a transaction or transactions effected or to be effected by him, that is to say—

(a) if the Board are of opinion that the particulars, or any further information furnished in pursuance of this paragraph, are not sufficient for the purposes of this section, they shall within thirty days of the receipt thereof notify to the said person what further information they require for those purposes, and unless that further information is furnished to the Board within thirty days from the notification, or such further time as the Board may allow, they shall not be required to proceed further under this section;
(b) subject to the preceding paragraph, the Board shall within thirty days of the receipt of the particulars, or, where that paragraph has effect, of all further information required, notify the said person whether or not they are satisfied that the transaction or transactions as described in the particulars were or will be such that this section shall apply,

and, subject to the following provisions of this section, if the Board notify him that they are so satisfied this section shall not apply to him in respect of that transaction or those transactions.
(2) If the particulars, and any further information given under this section with respect to any transaction or transactions, are not such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the Board, any notification given by the Board under this section shall be void.'.

Mr. Trotter: These amendments relate to the complex provisions of clause 27 which brings rather draconian powers into force so far as an artificial scheme is in effect for the avoidance of tax by means of a commodity straddle. Those who are innocently engaged in commodity trading could be caught by the clause, and I do not believe that it was intended to apply other than to those who have deliberately set out to avoid tax by what is known as the Tucker scheme.
Amendment no. 123 would bring in the requirement that the clause should not apply unless the partnership, which is a feature of these schemes, had come to an end and the person concerned had disposed of his interest in the partnership. If the words in the amendment were included, the innocent type of transaction that might otherwise be caught would be excluded.
Amendment no. 124 is complex. I shall not go into great detail except to say that it is based on section 464 of the Taxes Act 1970 which brings to play on section 460 of that Act the main anti-avoidance section of that Act, a procedure whereby the taxpayer can obtain a clearance so that he can be satisfied that any scheme in which he is engaged will not be caught under the powers of that Act. Therefore, I am suggesting that it should be made clear to the House that the Government do not propose to catch schemes other than those of the Tucker nature, for which the clause has clearly been specifically designed.
The Chief Secretary may well not be able to accept the amendments. Their drafting may not be perfect on a very complex subject. But it would be very helpful if the right hon. Gentleman would give an undertaking tonight that it is not the Government's intention to apply this legislation to other than the main Tucker type of scheme.
Secondly, the right hon. Gentleman might be able to say that the Inland Revenue would be prepared to consider a case put to it by those engaged in commodity dealings to be given a clearance of schemes, so that they know in advance whether they are in danger of having the draconian effect of the clause applied to them.

Mr. Joel Barnett: The hon. Member for Tynemouth (Mr. Trotter) mentioned this matter to me, and I know of his concern that it is possible that this type of clause, which we shall debate more fully a little later, might catch what he considers to be genuine, innocent traders. I understand that concern. However, amendment no. 123 is not only defective; it wrecks the whole clause.

Mr. Trotter: That was not the intention of the amendment.

Mr. Barnett: I appreciate that. I only mention in passing that that is what


it would do. I know that there may be some outside the House who might like that to be done, but I know that it was not the hon. Gentleman's intention.

Mr. Lawson: Substantiate that claim.

Mr. Barnett: The hon. Member for Blaby (Mr. Lawson) is the most remarkable hon. Member. He can never keep his mouth shut for more than about 30 seconds. I have hardly started to reply to his hon. Friend. I am now coming to his hon. Friend's amendment no. 124, which deals with the basic problem about which he was asking me both before the debate and this evening.
What the hon. Gentleman sought in order to deal with the central problem was a clearance procedure, which would more than meet his purpose. I have some sympathy with him, but the clause is clear. When the hon. Member for Mid-Sussex (Mr. Renton) moved his amendments in Committee, he said on precisely this point:
As an individual subscriber to the London metal exchange, I have checked with other commodity markets and I am advised by those who operate in them that they have no objections to the technical wording of the clause. They do not see it as inhibiting their business in any way; it may mean a small loss of trade to those who buy and sell commodity futures but, as I say, they have no objection to the clause. I have not, therefore, tabled the amendments on that ground."—[Official Report, Standing Committee A, 6th June 1978; c. 698.]
I do not think that I am quoting unfairly what the hon. Gentleman said.
I hope that it is clear that what the hon. Member for Tynemouth is seeking relates to an aspect about which those engaged in the commodity trades are not concerned. There will be other concerns. I do not want to do the hon. Member for Mid-Sussex an injustice, but I do not want to quote the rest of what he said. I am dealing with this particular problem.
If one instituted clearance procedures of the kind proposed in amendment no. 124, the only people who would benefit in practice would be not those genuinely in the commodity trades but the tax avoiders. At the considerable expense of the Inland Revenue, the avoiders and the devisers of schemes would be able to ask the Inland Revenue of each scheme "Can this be cleared?" The

Inland Revenue would say "No" until eventually they got one that was right.
9.0 p.m.
I hope that the hon. Gentleman will not want clearance procedures that could work only in that direction. Indeed, I know he does not. He wants to assure himself and those outside that the innocent will not be caught by the clause. I assure him that it is nowhere near our intention to catch innocent people who are dealing in commodity futures. I shall be explaining more fully, on the next group of amendments, the kind of scheme that I am talking about. I think that it will be quite clear to anyone who understands these matters that there is no question of catching genuine traders as opposed to those who are seeking, as it were, to latch on to them for the purpose of tax avoidance, as spelt out in the clause.

Mr. Peter Rees: Will the right hon. Gentleman take the House into his confidence and explain why amendment no. 123 would deprive the clause of any effect? As I understood the scheme that was outlined to us in Committee, it was precisely on the point of the disposal of a partnership interest that gave rise to a loss. That was the objectionable element of the scheme. That was the point at which the tax relief crystallised. It seems to me that my hon. Friend the Member for Tynemouth (Mr. Trotter) hit precisely that point, and I for one am left completely in the dark on the question why his very well drafted amendment should rob the clause of any effect.

Mr. Barnett: I am happy to oblige the hon. and learned Gentleman. It is true that an essential feature of the scheme aimed at is the early withdrawal by the tax avoider from the partnership dealing in commodity futures, when the loss-making size of a straddle transaction has been closed out but the profit-making side has not. If the amendment were accepted, however, the tax avoider would argue that a tax reduction accrued not from his disposal of his interest from the partnership but from the losses in dealing. It is the latter which, if anything, gives rise to a claim for tax relief under the sections mentioned in subsection (1) of the clause. What would happen would be that the avoider would expect his arguments to be supported by the courts.


That is why I say that the amendment would wreck the clause, and I assume that that is not what the hon. Member for Tynemouth or the right hon. and learned Gentleman have in mind.

Mr. Trotter: I am concerned with the effect on somebody who is in a partner ship and when, as happens, there has been a loss which may be the main effect of a transaction, but where it was not entered into with a view to having a scheme of the nature of that to which the Chief Secretary has referred. Surely those people will be affected by the proposal, because it is an innocently-entered scheme, in which there is a partnership that is continuing to trade. Those people, because they are in partnership and because they have had some tax advantage, as it happens, will be caught by the clause.

Mr. Barnett: I am happy to deal with that point further. If the hon. Gentleman will read the clause he will see that we are not talking about the usual kind of partnership between two individuals; we are talking about a partnership between an individual and a company. There are some partnerships of that sort which are genuinely trading; I do not dispute it. But the clause goes on to spell out many other things as well with which I was intending to deal when we came to the later group of amendments.
From what I said in Committee about the kind of scheme with which we are dealing, and the way in which the clause is drafted, I should have thought that the hon. Gentleman had nothing to fear. Bearing in mind the kind of scheme with which the clause deals, it would be very difficult indeed to find a genuine partnership in which there was at the outset an agreement not only that there should be a loss, but that at that point in time the partners should leave the partnership. It would be very difficult, I suggest, to find a partnership in which an arrangement of that sort had been written into the agreement and signed up in advance, before a profit had ever been made. If it is suggested that that is a genuine partnership, where somebody signs up in advance to lose money and then leaves before a profit is made on the straddle, I am bound to say that that kind of arrangement would be caught by the clause.

Mr. Trotter: Surely the point there is that the partner has left, whereas in the case that I illustrated the partner has not left. Surely, therefore, he should not be caught.

Mr. Barnett: If the hon. Gentleman is quoting to me a case in which there is not the kind of situation that I have described, I assure him that there is no danger of such a partnership being caught by the clause.

Mr. Trotter: I should like to put one further point, if I might, Mr. Deputy Speaker.

Mr. Deputy Speaker: Perhaps the hon. Gentleman will wait. He has a right to wind up when we reach the end of the debate, so perhaps he will reserve his winding-up speech until then.

Mr. Tim Renton: The Chief Secretary quoted quite correctly the remarks that I made in Standing Committee. Indeed, I made a point about those dealing in commodity markets. There was then no objection to this clause other than the aspect of retrospection. This is something else to which we shall be coming. I think that the point that is puzzling the House at the moment is purely in relation to amendment no. 123 and the insertion of the words "the disposal of".
The Chief Secretary himself said on 6th June:
It is intended that the partnership should make quick losses and that he should then leave it. Indeed, that is written into the contract. The terms on which he is committed to then assigning his interest produce a financial loss to him roughly equal to the seller's fee."—[Official Report, Standing Committee A, 6th June 1978; c. 728.]
The brief from which the Chief Secretar read just now in objecting to amendment no. 123 said that if the person involved did not leave the partnership he would then claim that the losses had arisen as a result of commodity dealings. I suspect that that is a totally different sort of situation.
I think that we are all genuinely trying to reach the right answer in this. The commodity straddle, in its very essence, means that, at one and the same time, one establishes two positions that are contradictory to each other. One goes long and short on proper futures at the same time and then, according to this scheme, one


lifts the leg in the partnership which shows the loss and one disposes of one's interest in the partnership and takes one's loss and puts it off against United Kingdom taxable income.
That is a totally different concept from that of regular dealings. I therefore fail to follow why the Chief Secretary has been told by his advisers that they cannot accept amendment no. 123. I should have thought that it was inherent in the Chief Secretary's own argument that amendment no. 123 was acceptable.

Mr. Peter Rees: My hon. Friend the Member for Tynemouth (Mr. Trotter) is to be congratulated on having demonstrated in such a very clear and concise way the limitations and defects of this particular clause.
We are very used to the gambit that Treasury Ministers are apt to use in our debates by very rapidly reading, in an incomprehensible way, from the brief that has been put into their hands. We have heard this tried out on us, and the Chief Secretary has tried it again. He has attempted to say that amendment no. 123 would wreck the clause.
As the right hon. Gentleman explained the operation to us, both in Standing Committee and today—very rapidly, but we were able to take it in—the loss is realised when the operator, the participant, sells his interest in the partnership, and not from a course of dealing. He sells his interest in the partnership at the moment when, because of this straddle operation, the partnership would, if it had come to an end at that point in time, have realised a loss. It is nothing to do with partnership dealing.
I can only conclude—it is very rare for me to say this to the Chief Secretary—that the right hon. Gentleman has not really understood the operation about which he is so exercised.
What my hon. Friend demonstrated is that this clause is not drafted with the precision that we would like and, therefore, it leads him, and myself, on to realise that there is need for a clearance procedure. Leaving aside the more general constitutional positions that we shall be debating in a moment, there is obviously a real need for a clearance procedure so that those who may be caught,

or think that they might be caught, shall be enabled to seek reassurance from the Inland Revenue.
It really is a very trumpery argument to say that the only people who can take advantage of this are those who would be wanting to abuse the tax system or those who would be wanting to take advantage of tax avoidance schemes. If that argument is really true, there is no case for any clearance system in our fiscal code.
The right hon. Gentleman knows as well as I do that there are sections—alas, not as many as I would like—that do contain a clearance procedure. There is section 464, which is operated, I understand, with reasonable success. The right hon. Gentleman will know that I recently put down a Question to him, in answer to which he gave the number of cases submitted to the Inland Revenue, the number of cases cleared, and the number of cases not cleared.
If the Chief Secretary is going to make this kind of anti-avoidance provision a regular feature of our fiscal code, he is bound to consider more seriously than he appears to have done the need for a proper clearance procedure. I believe that my hon. Friend has done us a great service in forcing this issue out into the open.
Perhaps this is not the moment to mount a major debate on this aspect of our fiscal code. Perhaps there will be another opportunity. I know that the House is very anxious to come on to the general constitutional point. As my hon. Friend the Member for Tynemouth (Mr. Trotter) has, as it were, focused the attention of the House on the limitations of this avoidance clause, I hope that he will not feel it necessary to press the matter to a Division, because he is secure in the knowledge that in a more leisurely and detailed way, we shall be able to explore the full horror of this clause in a moment of time.

Mr. Trotter: I accept my hon. and learned Friend's comments. I hope that we shall be able to consider this matter in greater depth and at leisure in the future.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Sir Geoffrey Howe: I beg to move, amendment no. 5, in page 21, line 1, leave out
'wholly before 6th April 1976'
and insert 'before 25th November 1977'.

Mr. Deputy Speaker: With this we may take the following amendments:
No. 79, in page 21, line 1, leave out
'wholly before 6th April 1976'
and insert 'before 11th April 1978'.
No. 10, in page 21, line 2, leave out '1976' and insert '1978'.
No. 6, in clause 28, page 21, line 27, leave out '2nd December 1976' and insert '5th April 1978'.

Sir G. Howe: We come now to the debate that has been foreshadowed to some extent in what hon. Members on both sides of the House have been saying. We are dealing with amendments affecting clauses 27 and 28—clause 27, already discussed, on commodity futures, and clause 28 on the right to repurchase.
The point common to all four amendments now before us is that they all relate to the dates on which the effective provisions of these two clauses should come into force. In other words, they all raise the question of retrospectivity in relation to both of these anti-avoidance clauses. That question has given rise to substantial and understandable interest, and it raises here, as it always does, very important issues.
Perhaps I may begin by explaining what the different positions are, represented by the Bill as it stands and the amendments now before us. First, in relation to clause 27, the Government's position as set out in the Bill is that the provision should come into force with effect from 6th April 1976. There is thus provision for two years' retrospectivity, and 18 months' retrospectivity earlier than the date of the first warning given by the Government that they would be legislating in respect of that.
Amendment no. 5 proposes that the provision should become effective from 25th November 1977, which was the date on which the first warning was given of the Government's intention in this respect. It was given on 25th November 1977, in a Written Answer by the Chief Secretary

in answer to his hon. Friend the Member for Hayes and Harlington (Mr. Sandelson). In that Answer the Chief Secretary set out his awareness of the schemes in question, and he went on:
The Revenue tells me that it does not recognise the ensuing claims as valid under existing law. However, its refusal to accept them will doubtless be contested and it could be some years before certainty is reached through the judicial process. To put the matter beyond doubt, therefore, the Chancellor will introduce appropriate legislation in next year's Finance Bill.
Then there is the rather curious closing sentence:
He will be considering from what date legislation against a claim to loss relief contrived in this kind of way should be effective."—[Official Report, 25th November 1977; Vol. 939, c. 965–66.]
It is back to that date that our amendment no. 5 seeks to allow the provision to operate, but no further back than that.
The third position in relation to clause no. 27 is amendment no. 79, in the name of the hon. Member for Cornwall, North (Mr. Pardoe). That proposes no retrospectivity at all but that the provision should come into effect on 11th April of the present year—in other words, on the date of the Budget announcement.
There are those three positions in relation to clause no. 27—back for two years, says the Chief Secretary; back to the date of the announcement, 25th November 1977, say I and my hon. Friends; and back only to the Budget date, says the hon. Member for Cornwall, North.
There are only two options before the House in regard to clause 28. First, there is the Government's proposal, contained in the Bill, that the provisions should be retrospective to 2nd December 1976. That is the date of the first announcement, according to the Government. We propose that it should go back only to 5th April 1978, which effectively provides for no retrospectivity at all.
9.15 p.m.
The difference there arises because we do not accept that it is legitimate to go back to the Government's first announcement in December 1976, because they did not thereafter take advantage of the first opportunity that they had to include the provision in the 1977 Finance Bill. Indeed, curiously, they missed a second opportunity of doing that, because they


made a second announcement of their intention to do it during the progress of the 1977 Finance Bill through the House of Commons, but even then they did not seek to incorporate their announced intentions in the 1977 Finance Bill, so that the slate was wiped clean by their inertia, if that is not to mix two metaphors too curiously. Having made two announcements, they failed to propose it in the 1977 Finance Bill, and they ought not to be allowed to make it retrospective beyond this year's Finance Bill.
It will be seen that these debates raise two interwoven and important issues. First, to what extent are retrospective laws of this kind admissible, if at all, in relation to the legislature? Underlying that, it raises the question, what is the basis of principle on which society is entitled to impose taxation on its citizens? What are the principles that guide the way in which that should happen, particularly so when the machinery for imposing such taxes is a democratically elected representative legislature?
Of course, we know that the history of representative government in this country, and in North America and other places, has centred around the key role played by the exercise of the taxing power, and the constitutional, political and legal status of the taxing power is very important. We must consider the whole of this subject in that context. It is not sufficient to say that we have a democratically elected representative legislature, so it may do what it likes, and that different societies have different methods of checking that.
Let us be clear what we are not considering. We are not concerned with retrospective legislation in the sense of legislation that confers relief—which legitimises a marriage or exonerates a Member of Parliament for sitting in this House when he is not entitled to—and that is a legislative act of mercy or legitimation. There is no controversy about that, and that is a perfectly acceptable form of procedure. Nor are we here concerned with retrospectivity in the wide general area of penal law. The imposition of punishment retrospectively, the creation of criminal offences retrospectively and the imposition of penalties retrospectively, in that wide meaning of the word "penalty", should certainly be accepted on all sides as being abhorrent and unacceptable. We are concerned with

a rather different category, namely, the extent to which retrospectivity raises special difficulties of principle in fiscal policy. I do not believe that many people would argue that one can approach retrospectivity in relation to tax law in the same way as one would approach retrospectivity in relation to criminal or penal law. There is a substantial difference, at least in degree if not in kind, between the right approach to fiscal provisions and others.
What is the philosophy that we ought to balance in considering this question? I dare say that some Labour Members would subscribe to the intemperate notion that property is theft and, therefore, fiscal provisions can proceed wherever they like to deprive people of property. Certainly the Opposition reject that idea. We start from the premise that the citizen is entitled to the continued enjoyment of his property unless he is deprived of it by the due process of law, with proper compensation.
There are other people closer to the hearts of my hon. Friends who begin by thinking that taxation is theft and start off with sympathy with that proposition. That goes too far as well.
Society is entitled to require its citizens to make contributions and sometimes substantial ones to the defence, order and good government of the Realm. The right and power to impose taxes is part of that.
On that basis, the citizen is not entitled by dishonest or illegal means to evade taxes which are imposed. But it has generally been believed, and rightly so, that the citizen is entitled to avoid taxes which are imposed in the sense that he is entitled to adjust his affairs so as to minimise his burden within the law that is for the time being in force. There are many judicial and other observations to that effect.
Those are principles from which we start, and they are fairly easily stated and understood.
The difficulties arise when we begin to consider the extent to which some avoidance is more or less legitimate than others. Proper avoidance—the Chief Secretary has blessed it explicitly on many occasions in the House and in practice—is acceptable to everyone. It is the adjustment of one's affairs by making exempt transfers


under capital transfer tax, by making covenants to charity, and by all the other steps that one takes in order to take advantage of licensed loopholes.
But there is a point when avoidance can be regarded as improper and unacceptable, deserving to be looked at critically, and deserving to be stopped up because it amounts to a defiance of or an escape from the underlying intention of the legislature. It is there that the difficulty arises. Where does that point arise? Can it be argued that something is manifestly an improper avoidance?
The House will recognise that in clear cases, that kind of avoidance against which the House is entitled to take action can be recognised, and I want to make it clear that there is no dispute on either side of the House about the nature of the transactions with which we are concerned. In Committee, the right hon. Member for Down, South (Mr. Powell) said of these provisions:
this is an unmeritorious case. So far as I can judge, as tax avoidance schemes go the one with which the clause is concerned is specially unmeritorious."—[Official Report, Standing Committee A, 6th June 1978, c. 703.]
That much in relation to the commodity provisions is common ground, and no one should say—and the Chief Secretary should not begin saying—that the Opposition are seeking to defend these provisions or standing as the friends of improper and mischievous tax avoiders. We are standing on a much more sure foundation of principle than that. But what we have to consider is how we deal with an admittedly unmeritorious provision of that kind. What do we do about it?
There are various alternative approaches which have been or can be adopted, and this debate is about the choice which we should make between them.
The more usual way is to have nothing to do with retrospectivity at all and to outlaw the provision, as in an ordinary Finance Bill, with the provision dating back only to the date of the Budget resolution. Normally, Parliament is concerned to do it in that way and, indeed, the courts have been concerned to see that retrospectivity is not involved. We all remember the case of Mr. Bowles

against the Bank of England which led to the enactment of the Provisional Collection of Taxes Act. The House will be familiar with those provisions. The normal drill is that the tax becomes effective from the date of the Budget resolution and that that effectiveness lasts only until the Budget resolution is turned into legislation, until the expiry of four months, or until the dissolution of Parliament, and Parliament has taken that care to see that even the Budget resolution is legitimised in that way.
The second course is that it should be retrospective to the date of the clear announcement of a specific intention to propose particular legislation. That is what we propose as being acceptable in amendment No. 5.
This is a particularly British approach to the problem. It is what has been described by some people as the "sniper" approach, which is characteristic of our parliamentary technique, in which the proposal being attacked is precisely defined and that precise definition relates back to the original announcement.
In other countries, quite different approaches exist. In these cases the legislature has conferred wider powers on an official or a tribunal to deal at large with tax avoidance schemes that are generally subject to some kind of appeal procedure. That approach has not commended itself in this country. It was not recommended by the 1955 Royal Commission, and it was not even recommended to the Royal Commission by the Inland Revenue. It has found no friends here.
The other course that the Government are seeking to put forward here is the much more far-reaching and wide-ranging pattern of retrospectivity in which they seek to make the provision operate either in the absence of any warning, or behind the date of any warning or more widely than any warning that might have been given. It is to that proposal that we object in this debate.
It may surprise the House that that last approach which seeks to go back behind the warning and go wider than any warning is one that is not without precedent, at least in utterance, in this House. The question is how we decide what is right in this case. In other countries there is a written constitution which enables the courts to decide what


is or is not proper. We do not have one, so it is very much a matter for this House to decide what is or is not acceptable when provisions of this kind are brought before us. It is a matter for the High Court of Parliament, if one can put it that way.
In this case, the Government approach was clearly set out by the Chancellor in his Budget Statement. He is seeking to shoot far too widely, and in a way that we find unacceptable. He said on 11th April this year:
Tax avoidance has emerged recently in a new form which involves marketing a succession of highly artificial schemes—when one is detected, the next is immediately sold—and is accompanied by a level of secrecy which amounts almost to conspiracy to mislead. The time has come not only to stop the particular schemes we know about but to ensure that no schemes of a similar nature can be marketed in future."—[Official Report, 11th April 1978; Vol. 947, c. 1202.]
The Chancellor has set out with his retrospective arrangements to destroy an industry. The Chief Secretary was even more explicit about it in Committee upstairs. He admitted that these provisions represented a threat, albeit to a small number of people. He went on:
This is the only way to stop those people in that industry."—[Official Report, Standing Committee A; 6th June 1978, c. 729.]
He set out to stop the industry by retrospective provisions deliberately introduced. Several hon. Members categorised him as seeking to legislate in terrorem. What we are concerned with is the legitimacy of the self-confessed terrorist approach. I do not think that the Chief Secretary would shrink from that. He uses this approach to justify retrospectivity beyond what we regard as acceptable.
The Chief Secretary, in order to justify the way in which he was approaching this matter, quoted from some precedents. He referred to Mr. Neville Chamberlain and also to Lord Jowitt when he was Solicitor-General in the 1920s and had just moved from being a member of the Liberal Party to supporting the Labour Party. It is right that in certain circumstances on previous occasions Chancellors of the Exchequer have sought to come to the House and justify that kind of approach.
9.30 p.m.
It is important to see how these matters have proceeded in previous cases. The

House has been reminded, for example, that Lord Simon, when he was Chancellor of the Exchequer between 1937 and 1939, sought to proceed in the way that the Chief Secretary is proceeding. Lord Simon had moved from the Liberal Party to the Conservative Party. During the war, Kingsley Wood, who was Chancellor of the Exchequer, also sought to proceed in this sort of way, by seeking to denounce any other scheme of tax avoidance that might arise.
The precedent of assertion was in the background of the debates following the announcement by Sir Stafford Cripps in 1948. Sir Stafford was subjected to criticism when his proposals came forward in the 1950 Finance Bill. He was undoubtedly seeking to enact retrospective legislation in this terrorist fashion and to say that he was taking action in order to stop anyone contemplating similar tax avoidance action in future.
We object to the fact that such an approach is without limit. Once we allow a Government to say that they are taking powers not just to stop a particular form of tax avoidance that the House has identified as being unacceptable but also to prevent anyone from contemplating the introduction of anything of that sort, however broadly defined, in future, we are abandoning any pretence at effective parliamentary control of the rule of law.
Of course, it is possible to sympathise with the tax collectors and those who draft our laws. They will often seek to justify their case by showing a huge loss of revenue, but I do not believe that the House regards this approach as justifiable. There is no case for accepting the grapeshot approach which is implicit in the Chief Secretary's attempt to destroy the tax avoidance industry.
What is the tax avoidance industry which he is setting out to destroy? How do we recognise the tax avoidance that is regarded as illegitimate? If we adopt the grapeshot, retrospective method, how can we define the difference between acceptable, legitimate avoidance, based on the legitimate advice that is available to every citizen, and the avoidance that the Chief Secretary intends to shoot with his blunderbuss approach? How can we recognise when taking advice that at which the Chief Secretary is shooting?
Our complaint is that the approach suggested by the Chief Secretary jeopardises the acceptance and legitimacy of our entire system of tax collection and jeopardises the willingness of citizens to be bound by the rules of law enacted by the House, when they can have no confidence that the rules will be upheld and continue.
More fundamentally, the Chief Secretary's approach threatens to destroy the consent of the governed and the trust that exists betwen those who are taxed and those who collect and impose the taxes. If we go down this road, it can be used to justify almost any act of a Government. It is a very dangerous road.
If, for example, a Government find that a rich taxpayer has moved most of his assets outside the jurisdiction, this sort of tax-collecting technique could be used to deprive him of the rest of his assets before he has a chance of disposing of them. It can move quickly to justify a confiscatory approach, and that of which the taxpayer complains in this blunderbuss, terrorist technique would be equally loudly complained of, for example, by trade unionists or trade union leaders if a Government not formed by the Labour Party were to say "We propose to deal in this way, retrospectively, with trade union funds."

Mr. John Cronin: The right hon. and learned Gentleman is making an interesting case. It is valid in many respects. However, is he not omitting one important safeguard? Any proposals of this nature that are introduced by the Government have to be passed by the House.

Sir G. Howe: That may amount to a safeguard, but it underlines and emphasises the importance of the duty that the House has to carry out. It underlines the importance of our duty in the context of a society that has no written constitution. There have been examples in the past where principles have been eroded and overridden and it is important to establish the principles that underline the matters that we are discussing. We must take care that we do not move in the wrong direction tonight.
Where would the position end if retrospectivity without limit, without warning, without limit of time, without limit

of prior warning or announcement, were to be accepted as the pattern of legislation in the House?
The real danger to our society is the extent to which our fiscal and taxpaying morality has already been eroded, the extent to which throughout all classes, because of the way in which the House has been creating tax legislation and the nature of tax legislation that has been passing through the House, there is increasing contempt for our tax legislation and increasing contempt for its legitimacy.
We are not concerned with an issue affecting only a handful of clever men and women designing one tax avoidance scheme after another, the group that the right hon. Gentleman is pursuing. We are concerned with the very same issues that are giving rise to moonlighting and the spread of the cash economy. They are the same issues that are causing widespread resentment of the VAT man and the random checks of the Inland Revenue inspectors. The right hon. Gentleman may look surprised, but it is an important feature of a coherent society that the millions who pay their taxes should have respect for the tax system and confidence in the legislature that creates it. If that respect and confidence begins to crumble, we are in serious trouble.
The extent to which the right hon. Gentleman is concerned about the spreading of avoidance schemes is in itself a symptom and a consequence of a tax system that is overloaded. It may be said, and will be said, that tax avoidance occurred even when income tax was levied at much lower rates. However, in those days Parliament was willing to grant powers to stop it, in some cases retrospectively, and the fairness of the system was much more widely accepted. Today there is growing doubt about the fairness of the system. Its fairness is increasingly questioned.
Those who are paying income tax at 98p in the pound are driven to find ways of avoidance. That is not all. Those who are paying marginal income tax at 40p in the pound on average pay packets feel equally driven to avoidance. We are just as likely to find taxpayers at that level of taxation saying that it is daylight robbery on the average pound of overtime as we are at every other level. Many are coming to see avoidance as not merely a legitimate means of operating within


the law and upholding the rule of law but as a means of challenging the politics of confiscation, envy and egalitarianism. We have reached the stage where the pursuit of equality has not produced an increase in liberty, although it might have produced a substantial growth in fraternity—the sense of brotherhood in opposition to the tax system which more and more people now feel in common.
We have an important choice to make about the direction in which we move within the tax system. We can either go in the direction of more and more severity, more and more retrospection, the stopping up of loopholes retrospectively and more intolerance—which in the end is the way to tyranny—or we can deliberately help to lighten the load of the taxpayer, ease the collar and begin to restore the system's acceptability and legitimacy. That is the right way in which to go.
That is why we reject without qualification the Government's proposal. It is unacceptable to have legislation of this type which goes back to a date selected at random from the air, without any foundation, warning or authority. We invite the House to reject the clause as it stands.
What about the alternative? We think that it is acceptable to go back to the date when the proposal was announced. It is interesting that those who have spoken against that proposition wish the proposal to come into effect on the date that the Bill was introduced. They even find it difficult to find a clear foundation of principle on that.
The right hon. Member for Down, South (Mr. Powell) made a formidable speech in Committee. He argued that only the date of the passing of Finance Bill was acceptable. He challenged retrospection to the date of the announcement. But let us examine the history of the capital transfer tax. The main charging provision of the capital transfer tax in the Finance Act 1975 is contained in section 20, which provides that
A chargeable transfer is any transfer of value made by an individual after 26th March 1974 other than an exempt transfer.
That legislation has a curious background. The date 26th March 1974—the foundation date for liability on gifts inter vivos—has no legitimacy in legislative

terms. It was the date of the spring Budget Statement on 26th March 1974. In August 1974 a White Paper was produced which filled out in a more ample way the back-of-the-envelope proposals which were announced in March 1974.
In September 1974 Parliament was dissolved and we had a General Election. Throughout that time there was no Budget Resolution. Even if there had been, it would have been brought to an end by the dissolution of Parliament.
A second Budget was presented in November 1974 and the Budget Resolutions came before the House on 14th November 1974. The Bill was published on 10th December 1974. The first of the Budget Resolutions proposed that capital transfer tax should be effective from 26th March 1974.
That is a classic description of retrospective legislation. It was so retrospective that it overleaped backwards, not merely six or nine months, but a General Election and a potential change of Government. But when that legislation was before the House, when the Second Reading took place in December 1974, it was passed without dissent. The right hon. Member for Down, South did not raise his voice against it. When we considered section 20 of that Finance Bill at the Report stage, the debate occupied only half a column in Hansard. The capital transfer tax was introduced retrospectively, beyond any doubt.
The citizen who was eventually subject to the legislation as amended in the Finance Act 1975 began to be affected by it as a result of a bare announcement from the Dispatch Box by the Chancellor of the Exchequer in March 1974. It is difficult to see how one can stand on an absolute firm and rigid position on principle, save that which has emerged as sensible, constitutional convention.
9.45 p.m.
Our amendments represent just that. The conventions were summarised by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) in what has come to be known as the "Rees rule". With respect to my hon. and learned Friend, that exaggerates the importance of his contribution to the discussions because the conventions are founded in precedent. In Committee upstairs as reported at column 719, my hon. and


learned Friend said that legislation of this kind can be regarded as acceptable by the House of Commons subject to four conditions. First, warning must have been given to the taxpayer of the intention to legislate in this way and the warning must have been precise in form. Second, the problem at which the warning has been directed should immediately be rererred to what is known as the tax reform committee for consideration—that is the committee that meets between the professions and the Inland Revenue. Third, if the committee can devise an appropriate legislative provision the draft clauses should be published immediately so as to give a second clear intimation to those who are likely to be affected. Finally, such a clause must without fail be introduced in the following Finance Bill.
Those rules, with their emphasis on a previous clear warning and legislation at the first opportunity to implement the previous clear warning are restating what is and has been generally accepted in this matter. For example, the Law Society submitted a memorandum to the House and the Committee in relation to this Bill. It contained a first part which was headed "Matters of Principle" and related to clause 27. The provision, it said, was intended to provide a credible deterrent to all future schemes of a similar artificial nature. It said that its deterrent effect rested on the fact that it was retrospective to a date prior to the date of the announcement that legislation was to be introduced. The Law Society went on:
Legislation which imposes retrospective tax liabilities is wrong in principle.… It has no place in a free society based on the rule of law.… For these reasons Clause 26 is wholly unacceptable in its present form.
It come to its substantive recommendation that
Clause 26 take effect from the date on which it was first announced that legislation would be introduced to counter that particular scheme.
The Law Society there is setting out the convention as it has come to be accepted—retrospection to the date of clear announcement. That has been the established practice over many years further back than that. If one goes back to the debates of 1949 and 1950, to which the right hon. Member for Down, South referred, Sir David Maxwell Fyfe, as he then was, said:

I put this principle forward as quite unchallengeable; that the justification for retroactive legislation is that a reasonable and definite warning has been given to people likely to practise the matter to be struck at, and they have been given the opportunity to avoid that course."—[Official Report, 28th April 1949; Vol. 464 c. 499.]
That practice has been followed for a number of years since then. One of the more recent examples was in the 1958 Finance Bill when Mr. Heathcote Amory, as he was, was Chancellor of the Exchequer. He said:
In my opinion, one essential pre-requisite, if retrospective legislation is to be used, is that those concerned should have every reason to be aware of the taxation consequences of their specific actions and, therefore, have a chance of avoiding it if they wish … Nothing that I have said is intended to lay down the proposition, as far as I am concerned, that in no circumstances whatever would retrospective legislation, after warning, be justified."—[Official Report, 18th June 1958; Vol. 589, c. 1132.]
Therefore a long tradition has developed which may be untidy but which can be regarded as an acceptable convention of the constitution along the lines set out by my hon. and learned Friend the Member for Dover and Deal in the rules that were enunciated upstairs.
Our position today, therefore, stands on a firm foundation of practice and constitutional convention. We accept the legitimacy of the date of the announcement. That is what we propose for clause 27. We do not accept clause 28, because the Government failed to introduce legislation to carry it into effect in the first subsequent Finance Bill. We reject absolutely the broad blunderbuss basis of the Government's approach which seeks to carry the provision back to a point in time chosen apparently entirely at random with the explicit intention of killing the industry, however defined, and preventing avoidance of whatever kind the Government choose to shoot at in the future. We cannot regard retrospection at large along those terrorist lines as possibly being acceptable.
I invite the House therefore to strike this judgment by voting for amendment no. 5, which is the foundation of principle for which we contend and the basis on which we shall have to consider the matter.

Mr. Joel Barnett: I found the speech of the right hon. and learned Member


for Surrey, East (Sir G. Howe) somewhat strange. I have been accused of being like a terrorist, showering grapeshot on all and sundry. I want to deal with that charge, but I want first to deal with the purist line—I do not mean that in a derogatory sense—of the right hon. Member for Down, South (Mr. Powell), that, no matter how obnoxious or unmeritorious a case, this action should not be taken. Indeed, as he put it, if a scheme is unmeritorious, that is all the more reason not to have retrospective legislation against it. In that sense at least there are no party political considerations. Both the right hon. and learned Member for Surrey, East and I disagree with that view. For the reasons that he gave, the right hon. and learned Gentleman cannot accept that purist line, and I want to explain why I cannot accept it either.
It has been suggested that I may have been a reluctant convert to the introduction of this kind of retrospective legislation. I want to make it clear that I am reluctant only in the sense that I thought long and hard before agreeing to the type of provision contained in the clause, and that at the end I came to the conclusion—I had no doubt whatever—that the clause was absolutely right. However, I understand the concern expressed not only by the right hon. and learned Gentleman but by a number of my hon. Friends who have mentioned it to me, including my hon. Friend the Member for Hayes and Harlington (Mr. Sandelson). I appreciate their views, although I believe that, having had the matter explained, they now understand why the clause is necessary.
I want to explain what we are talking about. In the narrow purist sense of the right hon. Member for Down, South, this is retrospection, but it is in no sense of the word general retrospection. It is retrospection against what is generally accepted on all sides—I would never accuse the Opposition of wanting this kind of scheme to continue—to be an obnoxious industry and one which, without this clause, would not only continue but thrive.
What is more, the only penalty in this retrospective legislation is not a penal provision. The only penalty is that tax allowances which were never intended to be given to these people will not be

allowed. It is retrospective only in the sense that each case in future will have to be brought to this House and the House will have to accept that it is a pure avoidance case, of the kind that I will explain, and purely artificial.
When my hon. Friend the Member for Loughborough (Mr. Cronin) interrupted the right hon. and learned Member for Surrey, East and mentioned this as a sateguard—that the House of Commons would have to pass legislation against every scheme, not now but in future—the right hon. and learned Gentleman dismissed the safeguard as unimportant. I should have thought that that was the most significant and important safeguard built into what we are doing.
Dealing with the scheme that we are talking about in this clause, the right hon. and learned Gentleman accepted that this was what he called an unmeritorious scheme. I should explain to the House that we are talking of a scheme under which an avoider joins a partnership in one or more commodity-dealing companies. As an individual partner and company, the tax avoider's share is 90 per cent. The main source of finance is a loan from a bank, which is controlled by the devisers of the scheme, and the only source of funds from the avoider is the fee that he pays to the deviser of the scheme.
There is a series of straddles in commodity futures to buy and sell. These are carried out over different times at different prices and a loss is arranged first, followed by a gain. In advance a contract is signed and agreed by the avoider that he will leave the partnership when the loss is made. In other words, he will make a specific amount of loss required for his purposes and then will leave when the straddle comes in and a profit is made. If anybody says that that is a genuine scheme, involving a genuine dealer—a genuine trade where one signs in advance to lose money and then before a profit is made, one leaves—he is wrong. Let there be no doubt that we are talking about an artificial scheme.
However, it is more than that. It is characterised by secrecy and obstruction. By the time this scheme or any other like it is stopped without retrospection, there will already have been many deals sold and ready. For example, if the House were to take the view advanced by the


right hon. and learned Member for Surrey, East and were to put the matter back to the date when I gave a warning in November 1977, we know that there are many other schemes waiting to he submitted from the time when they were first initiated by the devisers of the scheme.
If in this case and in the future it is to be taken only from the date of the warning, this is what the small number of people in the tax avoidance industry or the devisers of schemes want to see happen. They would have the scheme stopped from November 1977, and all the others which they are waiting to submit to the Inland Revenue would be available to be submitted. When this scheme is stopped, out comes another, and away they go to continue and thrive.
When I say that that is the situation which the House wants to see stopped, that is the kind of scheme about which I am talking. It has a high degree of artificiality which by no stretch of the imagination could be considered to fall within the normal tax avoidance affairs of an individual taxpayer. It is incredible to believe that this is a normal tax avoidance scheme for legitimately reducing tax liability. There is no legitimate loss. There is only the fee paid to the tax avoider. There is no financial loss to match the tax loss.
The main case against what I propose is the argument that tax avoidance occurs because of the very high rates of income tax, amounting to 98 per cent. The great majority of schemes used for these purposes involve corporation tax and capital gains tax. They are aimed at avoiding not 98 per cent. tax but 30 per cent., 42 per cent. and 52 per cent. tax. They are not concerned with the very high rates of tax.
The right hon. and learned Gentleman says that high rates of tax create increasing contempt in the minds of the average taxpayer. What will be the effect on the average taxpayer if he knows that two or three people are avoiding £200 million in tax? What does that do to the average taxpayer who each week has his tax deducted under PAYE? When we are considering contempt for the tax system, we must consider that aspect.
We are then told by the hon. and learned Member for Dover and Deal (Mr. Rees), in his customary elegant manner, that the battle is one-sided on the Inland Revenue's part. But, as he must know, the battle is one-sided in this instance on the side of the tax avoider and the devisers of these schemes, for the reasons that I have explained. It is interesting that no one has yet come up with a proposition that will stop this kind of scheme—a scheme that brings as much contempt to the tax system as do any rates of tax devised.
10.0 p.m.
The right hon. and learned Member for Surrey, East then endorsed what he called the Rees rules. They are interesting, and I want to go through them. The first rule is that the warning must be precise. The hon. and learned Member for Dover and Deal did not deny that the warning given in November 1977 was precise. Indeed, he conceded that it was absolutely precise. I agree that should be done.
Secondly, the problem should be referred immediately to a tax reform committee. I agree with that proposition.
Thirdly, if legislation can be drafted to deal with tax avoidance, that should be done immediately—I agree—and it should be published.
Fourthly, it should be introduced in the immediately following Finance Bill. I agree with that.
The trouble, as the right hon. and learned Member for Surrey, East must know, is that if that is all we do, everything fails and this industry continues, for the reasons that I have explained.
The tax at stake in 1976–77 in only three schemes which are known so far—there may well be more—is nearly £200 million. The Inland Revenue has seen the accounts of two companies with artificial deductions of the kind which I have described, which could mean nearly £100 million in each case.
The purist approach would be to say "Never mind. Let that go on." That is because no purist or anyone else has come up with a proposition that would stop it. On the other hand, the right hon. and learned Gentleman's proposal equally would not solve the problem. Therefore, a small group of people would


be cocking a snook at Parliament while the vast majority of decent people who pay their taxes would have to sit by and let it happen.
We have a straight choice tonight. The choice is to swallow our repugnance and introduce not a general form of retrospection but a somewhat novel kind, namely, a form which provided that in future each scheme must be acceptable to the House as deserving of being killed. I believe that that is what the House should do, particularly when we bear in mind that we are talking not about retrospection that imposes serious criminal penalties on individuals, but about not allowing tax relief that was never intended to be allowed. I believe that that is what the House should do, and I invite it to vote against the amendment.

Mr. Neville Sandelson: I am impressed with the arguments that my right hon. Friend has adduced this evening. They have stilled a good deal of the disquiet that I expressed to him earlier. However, I should like to ask one question. Why has he fixed on the date of April 1976? Is that not an arbitrary date and an arbitrary exercise of his executive powers in this matter? Why that particular date? Why not go back a year or more, or come forward in time? Will he explain to me and to the House what has determined that particular date?

Mr. Barnett: As my hon. Friend will appreciate, any date is arbitrary in these matters. But, in practice, we do not believe that before that date any such schemes were prepared. Opposition Members find it amusing that we should fix a date to allow these schemes to be introduced. I am delighted to have my hon. Friend's commendation. I hope that he will support me in voting against the amendment.

Mr. Pardoe: At the outset of my remarks I declare what might be thought to be an interest. I am a member of the London Metal Exchange. I am not, however, in any sense a director of a broking company which could in any way be involved in such schemes. Indeed, I have searched the City far and wide to find anybody who is involved in these schemes, and my searches lead me to conclude that the Inland Revenue's estimate of £200 million is the utmost piece of poppycock,

even by that Department's standards.
The Chief Secretary began by saying that we are dealing with an artificial scheme. I do not think that anyone doubts or denies that. All those who either support or oppose his argument accept that it is an artificial scheme. But what the right hon. Gentleman did not say is that it is also an illegal scheme, although he did say it when he gave his answer to a parliamentary Question on 25th November, he reiterated that view in Committee upstairs, and it is clear that he and the Inland Revenue together believe that this is an illegal scheme. Therefore, why must there be legislation against it?
The Chief Secretary went on to say that no one had found any way of dealing with the scheme other than by the way that he was proposing tonight. This is an illegal scheme. The way to deal with an illegal scheme is through the courts. That is the way to end this kind of tax evasion, and the right hon. Gentleman should take that course and not ask Parliament to change the law retrospectively simply because he thinks that the processes of law will be expensive, or time-consuming, or that he may lose a t the end of the day.
I emphasise that the position that my right hon. Friends and I take is that retrospective legislation, when it is against the interests of the individual, is always wrong. Retrospective legislation is, of course, very often in the interests of individuals, and that cannot be wrong. As the right hon. and learned Member for Surrey, East (Sir G. Howe) said, acts of indemnity in respect of Members of Parliament who were found to be sitting here when they should not have been were right. Perhaps the most interesting example from my point of view occurred way, way back, when Richard Strood, Member of Parliament in 1512, was convicted by the Stannary Court in Parliament of having proposed legislation to regulate Cornish tinners, and Parliament passed an Act of Indemnity which virtually quashed the conviction. That Act changed the law retrospectively, and it is generally held to be the basic statement of the freedom of speech, but it was in the interests of the individual, and I do not think that anyone, on either side of the House, is trying to make the point


that all retrospective legislation, when it is in the interests of individuals, is wrong.
I do not think that many hon. Members on the Opposition Benches are trying to make the point that retrospective legislation is even unconstitutional. The supremacy of Parliament means that Parliament can do any darned fool thing that it likes. That is one reason why some of us believe that there is a need for major constitutional reform in Britain, to stop the unfettered dictatorship of Parliament. I think that this proposal—which will probably be carried by this place—ought to prove to hon. Members who hitherto have not appreciated the necessity for constitutional reform just how necessary it is. We need a Bill of Rights. We need entrenched clauses. We need them to protect the rights of the individual.
Nor is retrospective legislation anything new in this House. It is not even new as a means of closing tax loopholes, alas, because it has been used for that purpose by other Governments in the past on several occasions. The most clear-cut example of retrospective legislation in recent years—it was not related to taxation—was the War Damage Act 1965. The courts decided that the Burmah Oil Company was entitled to make a claim for damages against the Crown. Parliament decided to change the law to ensure that the company could not do that. Parliament changed the law retrospectively.
An amendment seeking to have the Second Reading of that Bill delayed for six months, which would have virtually meant that it would be wiped out altogether, was tabled by Mr. Eric Lubbock, now my noble Friend Lord Avebury, and was moved by my right hon. Friend the Member for Devon, North (Mr. Thorpe). The vote took place on 3rd February 1965, when the amendment was quashed by 222 to 229.
That was a very poor vote, bearing in mind that the House, Conservative versus Labour, was very evenly balanced in that Parliament. Indeed, the Conservative Front Bench abstained. But I must tell the right hon. and learned Member for Surrey, East, who was then plain "Mr." and the Member for Bebington, that his name was recorded on the correct side. He voted for virtue.
The history of the involvement of the House in retrospective legislation is, alas, not as clear-cut as some of us would like it to have been. It is pretty muddied. I have to give that to the Chief Secretary, who is obviously aware of it. But I hope that for Liberals retrospective legislation will always be repugnant, because it offends the rule of law.
I do not say that as a lawyer. I am not a lawyer, and I have no great love for lawyers' law or constitutional jargon, but it seems to me that if one is to say that ignorance of the law is no defence—and that is fine—I must be able to know what the law is. I must be able to find out what it is, and having found out what it is I must be able to act in accordance with it.
How can the rule of law apply if, having found out what the law is and got within it, I find that it can be changed retrospectively, so that the law at the time I acted is held not to be what it was when I performed the act? That is to suspend the notion of time. While that may be OK for Einstein, I do not think that it should be done by the Chief Secretary.
There are two conventions on human rights dealing with the matter. We are rather concerned with human rights at present. There is the United Nations convention, article 11(2) of which says:
No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence under national or international law at the time when it was committed.
There is the European convention, which says:
No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed.
It will be argued that the matter with which we are dealing is not a criminal offence. In other words, we can do with taxation things which we cannot do with the penal law. I am well aware that this point was argued in an article entitled
Retrospective legislation and the rule of law in Britain
by J. W. Bridge, who was there discussing the War Damage Act 1965. Having concluded that the Act


must be regarded as a serious breach of the high standards of legislative behaviour which have been customarily observed by the United Kingdom Parliament",
he added:
One other field in which Parliament has had recourse to retrospective legislation on a number of occasions is that of taxation.… There can be little objection to this use of retrospective legislation since it may surely be regarded as an aspect of the 'game' played between taxpayers and the government.
I do not believe that it is possible to distinguish constitutionally and in terms of human rights between the law on taxation and the law on other matters. I do not think that we should accept that argument for one moment.
The rule of law cannot exempt taxation, for who is safe? This is the point that I really want to make to the Chief Secretary. He will say that this will not be done to affect the way in which we conduct our normal personal financial affairs. But I suspect that in this place many of us make provision for our retirement by means of retirement annuity premiums. Those are tax-free when we pay the premiums. The investment income within the insurance fund, within the pension fund, is tax-free. There is a mass of tax concessions which ensures that the final amount of money that we get when we retire is greater than it would otherwise have been. We make those payments artifically only because of the tax concessions involved.
10.15 p.m.
What is to stop a future Government—perhaps on the very day on which I choose to retire—saying "Sorry, all that tax has to be paid back"? The Chief Secretary may say that it would not happen, because there are far too many people who have practised this type of tax avoidance. Is it, then, to be said that tax avoidance which is practised by a sufficiently large minority to be politically significant is apparently all right, and is safe from retrospective legislation, whereas tax avoidance which is practised by a small minority is apparently all wrong and can be dealt with by retrospective legislation? I do not think that we can uphold that view for one moment.
Then there is the argument that we should judge each case on its merits. I agree with the comment that this is a case without merit. Certainly it is extremely

difficult to argue in favour of any of these people who have performed this kind of action. But let us not fool ourselves. This is not the only case of tax avoidance going on in Britain today. Tax avoidance is the most common national disease that there is in Britain, and it does not just affect very rich people who happen to have a few good financial advisers. The whole country is on the fiddle. Does not the Chief Secretary know? It is true. Every taxpayer has become a tax avoider, if not a tax evader, and the great majority are rapidly becoming tax evaders as well.
The Chief Secretary has only to go to his Saturday morning surgery or to his local Labour clubs to know that this is true. Even in his constituency his Labour clubs will occasionally leak the odd bit of truth over a pint of bitter. He really cannot live in a kind of fool's paradise where there is no tax evasion other than in the City of London.
I come now to the difference between dates. I do not want to make a great meal of the fact that we believe that 25th November 1977 involves retrospective legislation. It certainly does. It is not as bad retrospective legislation as the date that the Chief Secretary chooses, but that is just a time argument.
The argument of the right hon. and learned Member for Surrey, East is that 25th November 1977 is somehow all right because the Chief Secretary told Parliament in a Written Answer that the Government would take some action. But that parliamentary answer is extraordinarily unclear. It does not say when the action is to be taken, or what the action will be. In any case, do we really accept that a Written Answer is a substitute for legislation?
I accept, of course, what the right hon. and learned Gentleman said about capital transfer tax, and the fact that it was set out in a Budget Statement in March 1974, and enacted, after another General Election and after another Finance Act, in the latter half of 1974. Nevertheless, surely we all accept that Budget Statements are somehow different in this respect from Written Answers. Yes, they are different, and they have always been accepted as different in this House. Budget Statements change the tax law, and they do it all the time, and we have always accepted the fact.
I return to the wider problem I raised. The decision that the House will, I think, take tonight—

Sir G. Howe: Does the hon. Gentleman not accept that, of course, in the ordinary way a Budget Statement can have special force if what is stated is embodied in a Budget Resolution which is then approved by the House and remains in force for as long as provided by the provisions of the Taxes Act? That is the usual procedure. In the case of capital transfer tax, there was no such Budget Resolution in March 1974 and it was in mid-air throughout an election campaign until the Finance Bill was introduced in December 1974. That is a precedent of the clearest possible kind, which this House accepted virtually without argument.

Mr. Pardoe: I have already said that I accept that there was this point at that time. Looking back, I think that it is exceedingly unfortunate that we all allowed it to happen. I accept my share of the blame, because I was there, although the right hon. Member for Down, South (Mr. Powell) was not. Had he been, who knows, we might all have been told to do our duty.

Sir G. Howe: The right hon. Member was here in November.

Mr. Pardoe: Yes, that is right.
Finally, I come back to the issue of Parliament. Parliament, the dictator, can do what it likes. The hon. Member for Loughborough (Mr. Cronin) used this as a defence. He said to the right hon. and learned Gentleman "If Parliament votes for it, it is all right."
But what, in fact, does Parliament represent? Even if Parliament represented accurately and fairly the views of the British people expressed at the ballot box—the hon. Member for Loughborough will know that I do not accept that it does—Parliament cannot be left as the dictator in this kind of way. Parliament ought not to abolish the concept of time as it is endeavouring to do in legislation tonight. It ought not to pass retrospective legislation.
I hope that the House will support amendment no 79, which takes us to the Budget Statement and no further back.

Mr. Cronin: I propose to make an extremely brief speech, because I appreciate that many hon. Gentlemen, both in this Chamber and on the premises, would like progress to be made and to be able to return to their beds at an early hour.
I was astounded by the speech of the hon. Member for Cornwall, North (Mr. Pardoe). He said that the whole country is on the fiddle. I wonder what sort of company the Liberal Party mixes with. [HON. MEMBERS: "The Government."] I am talking about people outside this House. No one in his senses could suggest that there is any fiddling on the Government side of the House. From my long knowledge of my constituents, my impression is that most are honest, reasonable people who pay their income tax, with some grumbling but honestly, and are aware that they must do so. I find the remarks of the hon. Member for Cornwall, North extraordinary.
I agree with the hon. Member that retrospective legislation is undesirable, but I think that he has got away from the point. He was saying that it is very important that everyone should know whether he is offending against the criminal law. But here there is no question of crime. It is merely a question of people being prevented from having undesirable or anti-social profits. There is a very important distinction.
The right hon. and learned Member for Surrey, East (Sir G. Howe) said that it is difficult to draw a distinction between a proper and an improper tax avoidance. Obviously there are some difficulties. But we have had income tax for so long and there has been so much legislation on the subject that surely by now there are established precedents as to what is improper and what is acceptable tax avoidance.
Anyone is entitled to adjust his affairs so that he pays the minimum amount of income tax, within certain limits. All of us know how small business men, for instance, can have cars which they charge to income tax but which are probably not absolutely essential for their business. We all know that there is a certain amount of tax avoidance along those lines.

Mr. Norman Tebbit: The hon. Member has made a very interesting


point. He said that he though that it should be within certain limits. Surely that is the case that is being made—that the limits should be certain. What the Government are proposing is that they should be uncertain and subject to the whim of the Government in retrospect.

Mr. Cronin: The hon. Member is—[HON. MEMBERS: "Right."] The hon. Member is recognised to be a very smart Opposition Member. In fact, he has a semi-official position in that respect, with three other hon. Members.

Mr. Tebbit: What position?

Mr. Cronin: If the hon. Member listened to me instead of anticipating my points, he would probably learn something. I suggest that he be patient and listen.

Mr. Sandelson: Is it not the case that it should be subject not to the will of the Government but to the will of the House, and that what the will of the House is must depend upon the particular circumstances and the particular context that we are discussing? In this context, my hon. Friend is perfectly right to suggest that here there is a contrived scheme to defeat the public interest and that the mere fact that it is tax avoidance as distinct from tax evasion does not touch upon the heart of the matter. It is a contrived arrangement to defeat the public interest. My hon. Friend has a point, and I want to hear what he has to say about it.

Mr. Cronin: With his usual brilliant intelligence, my hon. Friend has anticipated some of my speech. I hope that he will bear with me. The right hon. and learned Member for Surrey, East is worried that there will be no limit to this retrospective legislation. Obviously, there is a very clear-cut limit, because there are now established precedents as to what is anti-social and what is tolerable legislation. If that is not accepted, I do not know why we have had Committee and Report stages on Finance Bills during the 24 years that I have been a Member of this House. We ought to have learnt something by now.
The important thing is that Government can use their discretion in this matter. In the ultimate, the Government

are responsible to the House and, at the next General Election, to the electorate.

Mrs. Elaine Kellett-Bowman: What about the law?

Mr. Cronin: There is no question of the law being broken. This retrospection will only prevent people from obtaining ill-gotten gains. The important point, which my right hon. Friend the Chief Secretary has made very clearly, although some hon. Members have perhaps still not discerned it, is that there is no question of any punishment. There is only the intention to prevent people from obtaining ill-gotten gains from tax avoidance.

Mr. Tebbit: Will the hon. Gentleman give way?

Mr. Cronin: No. The hon. Gentleman has already had a fair hearing. Were his prospective intervention to be as futile as his previous one, it would serve no useful purpose.
The main point is that tax avoidance is now becoming a very anti-social and anti-national industry which must be stopped. I could say very much more about this, but my right hon. Friend the Parliamentary Secretary to the Treasury is sitting beside me in a manner which is not entirely supportive. I suggest that the time has come to end these parasitic organisations which take the money out of the pockets of all of us and of our constituents. If some people avoid tax in an anti-social way, other people have to pay for it.
The point that was made by my right hon. Friend the Chief Secretary has absolute and complete validity. Therefore, I hope that no hon. Member will support the rather backward views of the right hon. and learned Member for Surrey, East.

10.30 p.m.

Mr. Tim Renton: It is not often that I find myself in almost complete agreement with the hon. Member for Cornwall, North (Mr. Pardoe). On this occasion, I do, except about the date to which these schemes should be rolled back.
I suggest that the remarks by the Chief Secretary that these schemes are highly artificial is really a matter for the courts to decide. That is why the courts exist. In Committee, the right hon. Gentleman


showed his attitude to this question in a very significant way. He said:
But there is a risk that the schemes, although we believe them to have no validity, may well be found by the courts to be perfectly legitimate and the tax would be lost to the Revenue.
Here I must interpolate the question: is not that what the courts are for? It is their job to decide whether the schemes are legitimate and, if so, to decide accordingly, and to protect the citizens and companies involved, however nasty the schemes are.
The Chief Secretary went on:
it is incumbent upon us to see whether there are ways that we can stop it."—[Official Report, Standing Committee A, 6th June 1978, c. 730.]
That is at the heart of this issue. It is not to do with the artificiality of the schemes as such. It is a fear that the courts will not find the way that the Government want. Therefore, the Government are saying, in effect, "The game has been played. We do not yet know the result. But we are afraid that we shall not like it. So we shall change the rules retrospectively to be sure that we get the result that we want." I believe that however nasty these schemes are and however intolerable they are, that argument is unacceptable to this House of Commons.
The Government feel that they have a good case for retrospective treatment in this instance, because we are talking about tax avoidance, and no one in general sympathises with tax avoidance. But the House should consider that what the Government are trying to do is to deal with the superficial effects without tackling the root cause.
There is no doubt that the root cause is high and oppressive taxation. It is this that leads people and companies constantly to seek ways of reducing their tax burdens. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said, there is a growing contempt for our tax system. The only way of tackling this is by diminishing the share of our gross national product that is absorbed by the public sector and has to be financed by the taxpayer. We have to increase productivity. We have to increase our growth in GNP. In this way, we can decrease tax rates without decreasing public services.
The Government have chosen to go the opposite route. They have chosen to increase tax, to increase the temptation to avoid tax, and now retrospectively to increase the punishment for that tax avoidance.
I remind the House of a quotation from Adam Smith's "Wealth of Nations", which is very relevant to what we are discussing:
An injudicious tax offers a great temptation to smuggling, but the penalties of smuggling must rise in proportion to the temptation. The law, contrary to all the ordinary principles of justice, first creates the temptation and then punishes those who yield to it, and it commonly enhances the punishment, too, in proportion to the very circumstances which ought certainly to alleviate it—the temptation to commit the crime.
That is precisely the route being taken by the Government, and they should rather think back to the example of the Chancellor of the Exchequer, one Robinson, in 1827—I cannot say whether he was a Tory or a Whig—who forgot to renew a quarter of the tobacco duty one July. There was a great deal of smuggling at the time. To his great surprise, the effect of forgetting to renew this quarter of the tobacco duty so decreased smuggling in the following year that a £700,000 Budget surplus was created and, in consequence, the reduction in the tobacco duty was continued.
That is the lesson that the Government should learn. But they choose instead to go the route not of freedom, not of forgetting to increase taxation, but, rather typically, of
trouble, vexation and the oppression of the citizen",
again to quote Adam Smith.
My real objection to the principle of retrospection is that once it is established it can be used for any purpose at any time. Take television licences, for example. We could well have a Government—either Labour or Conservative—in the future which did not like the BBC and claimed that it was biased in putting over Government actions. We have already heard such cries from Government Front Benches. In consequence, that Government could decide to discourage people from watching the BBC by doubling the television licence fee and making it retrospective for two or three years. Those people who could not afford to pay would have their licences removed.


That would be a very effective way of controlling people's viewing and listening.
The Chief Secretary may say that sort of thing is impossible, and that it could never happen. But the House must remember that the Government have shown very bad faith in these matters, once the precedent is introduced. Take referenda, for example. We were told by the right hon. Member for Huyton (Sir H. Wilson) that the EEC referendum was a once-for-all occasion—a unique event. Now we find ourselves faced with referenda for the Scottish and Welsh Assemblies. Once retrospective legislation is accepted as a principle, it will be used for other reasons that are less acceptable than the crucifixion of tax avoiders, which is what the Government have in mind here.
What the tax avoiders were doing was legal when they did it. Had it not been legal, there would be no reason for clause 27 because the courts could deal with the situation. It has been stated repeatedly that an individual has the right to so organise his affairs that he pays as little tax as possible within the law at the time. This has been upheld by judges and Lords of Appeal. It is that right that the Government are seeking to overturn.
I believe that there is a case for retrospective legislation if it is to right a past wrong against an individual. The case of war widows pensions is an example of this. The views of society change. We become more generous about the amount of pension that should be paid, and it is right to consider retrospection in adjusting war widows pensions.
But there is never a case for retrospective legislation which oppresses the citizen and exacts a penalty from him for a past act that was legal when he did it but has since been declared illegal. Thus lies the way of dictatorship, and this is precisely the way that the Government want to take the House tonight. I hope that hon. Members opposite will resist the Government Whips in voting for this amendment.

Mr. Alexander W. Lyon: I listened to the opening of this debate with interest in order to try to find out the cause of so much of the agitation that we have seen in the columns of The Times and on the Benches opposite. I find that we are discussing a particularly unmeritorious cause where everyone is

agreed that the system of tax avoidance should be put to an end. I find that everyone is agreed that we must go back certainly to the Budget Resolution, and some of us are agreed that we should go back to the first statement of intent to legislate in November last year. The only issue dividing hon. Members as acutely as the hon. Member for Mid-Sussex (Mr. Renton) suggested is the issue of retrospection. We are not only in the area of the usual matters pertinent to a Finance Bill. We are in the issue of constitutional principle raised by the hon. Member for Cornwall, North (Mr. Pardoe) who said that we are discussing the rule of law.
I could take strictures from the Conservative Benches if the greatest abuse of the rule of law through retrospective legislation, which has adversely affected not just certain financial interests of a limited number of speculators but the vast population of black people in this country, had not arisen in the second schedule of the Immigration Act 1971 which was supported by most Tory Members and a great many of those who are raising the issue of retrospection with such verve.
When I listened to the hon. Member for Mid-Sussex declaiming that this is an unconstitutional principle which would adversely affect the interests of the individual, I considered this clause, which says that tax allowances should be taken away from people who do not deserve them and who would never have had them but for the fact that we were not able to legislate in time, and I considered the second schedule to the Immigration Act which said that a man who came here illegally before 1973 and had obtained immunity from deportation and the right to settle in this country because he was not prosecuted for the offence within six months should have his whole status here removed, should be able to be removed without a deportation order being served on him, could be taken off the street, away from his family and put in prison, sent back to the place whence he had come and be subject to the penalties of the criminal law.
The Conservatives all voted for that in a piece of legislation which was described by Lord Salmon in the case of Azam in the House of Lords as one of the most tortuous pieces of legislation he had ever heard. He said that he could not bring himself to interpret it in the way that the


majority in another place interpreted it. That legislation was never interpreted in this House or explained to us by any Government of that time. It has adversely affected the lives of hundreds of people in this country since 1973—without any protest from the Conservatives who now raise the issue of constitutionality and the rule of law.
The person who raised the issue in this amendment with the greatest lucidity in the Finance Bill Committee was most pertinent in supporting the proposal in the Immigration Act. He voted with the Conservatives for what was undeniably retrospective legislation taking away the rights of people who, on his argument, were people whom he might have regarded as unmeritorious and whom most of us would regard as unmeritorious in the way in which they came into this country. However, those people had undeniably obtained a status in Britain, which apart from the retrospective legislation was irreversible.
10.45 p.m.
In most circumstances I do not accept the principle of retrospective legislation. The arguments that are advanced tonight on restrospectivity, especially where penal clauses are attached, should be weighed extremely seriously. However, where the House forms the judgment that there is totally unmeritorious action that has to be stopped and that the only way to stop it is by retrospective legislation, it must be right that a limited amount of retrospective legislation is permissible.

Mr. Ivor Stanbrook: rose—

Mr. Lyon: That must always be a matter of judgment.
It must always be for the House, in its wisdom, to decide the balance of interest. We are discussing a limited number of people who are making considerable gains from the rest of taxpayers by a scheme that no one in the House wishes to defend. The principle is undeniably right that that practice should be stopped. I believe that in this instance there is a case for retrospection.

Mr. Stanbrook: Does the hon. Gentleman agree that in his example there was involved a criminal who had committed a crime and who subsequently became

liable for prosecution, where we are dealing with something that was not unlawful when it was done, which is completely different?

Mr. Lyon: Those who entered the country in the way I described before 1968 had not committed a crime. Those who came in between 1968 and 1973 committed a crime but they were immune from prosecution and deportation six months after entry. Therefore, when the 1971 Act took effect those people had acquired a status that was completely legal and it allowed them to say perfectly properly, "We are here to stay." By means of a Conservative piece of legislation the House removed that right. It was not merely the right to claim allowances, not merely money, but initially their freedom and then their total status and total livelihood in Britain. Those who passed that legislation have no claim to criticise my right hon. Friends for the sort of legislation that is contained in the clause. I support the clause.

Mr. Ian Gow: At the beginning of his speech the Chief Secretary said that he was a reluctant convert to the principle of retrospection. At the end of his speech he said that he thought it right for us to swallow our repugnance at retrospective legislation and agree to clause 27. The right hon. Gentleman made no converts from the Opposition Benches.
The key issue is whether we shall create a new precedent. There was a telling intervention by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) during the speech of the deputy leader of the Liberal Party, the hon. Member for Cornwall, North (Mr. Pardoe). My right hon. and learned Friend referred to the precedent that was created in respect of capital transfer tax. If we pass clause 27 unamended, we shall be creating a dangerous precedent.
In Standing Committee the Chief Secretary said:
I want to say at the outset that there is a major difference … between what might be called ordinary tax avoidance and schemes of this character."—[Official Report, Standing Committee A, 6th June 1978, c. 727.]
I do not think that it is possible to make a distinction between types of tax avoidance schemes. The only test is


whether the Government of the day have been able to draft their legislation with sufficient skill to meet their intentions. It is up to the Government so to frame their own legislation as to ensure that it catches for tax those people that it is intended to catch.
When the Chancellor made his Budget Statement he said something which I believe to be sinister. He said:
The time has come not only to stop the particular schemes we know about but to ensure that no schemes of a similar nature can be marketed in future."—[Official Report, 11th April 1978; Vol. 947, c. 1202.]
He said that for this particular scheme he was going to propose retrospective legislation but that he was not going to do that for avoidance schemes relating to capital transfer tax. He said that the Government's proposal would become effective only for this financial year.
The Chancellor was saying that we were to be faced with a further series of retrospective legislation whenever the Government of the day thought that they had drafted their past legislation defectively. The Government were giving notice that we were now about to embark upon a completely new technique of taxation—retrospection whenever the Chancellor of the day thought that his own tax laws had become defective.
For the Government to say that a taxpayer who has acted lawfully in the past is to be treated by the courts and the Government as having acted unlawfully is thoroughly repugnant. We are passing down a dangerous road this evening, if we agree to pass clause 27 without amendment. I hope that the House will carry the amendments.

Mr. William Hamilton: The speech that we have just heard would have been better made before the speech by my hon. Friend the Member for York (Mr. Lyon). If ever a case was destroyed it was destroyed by my hon. Friend Let Opposition Members not pretend that they are debating a matter of principle. They are doing nothing of the kind.
I cannot pretend to be other than anxious that we seem to be making an attack on a fundamental principle—the rule of law. But it is not the first time that this House has done that. Precedents have been quoted by the right hon. and learned Member for Surrey, East (Sir G. Howe).

No doubt the Financial Secretary could give many more.
I have been in the House long enough to have heard considerable speeches by the present Lord Hailsham, then Quintin Hogg, Sir David Maxwell Fyfe and Sir Stafford Cripps arguing for or against the introduction of retrospective legislation, depending on the merits of the case. It used to be said, with some truth, that if the Tory Party had an indefensible case to defend they should put up Sir David Maxwell Fyfe and he would do it. Often he was put up to defend such cases.
So far in the debate no one has argued the purist case—that in no circumstances whatsoever shall retrospective legislation be introduced. I do not believe that the right hon. Member for Down, South (Mr. Powell) takes that view. He accepts that retrospective legislation of the benevolent kind which benefits individuals or organisations is acceptable. If he does not, we can say that there are no purists in the House.
The hon. Member for Cornwall, North (Mr. Pardoe) said that retrospective legislation that was to the benefit of individuals was good, and that presumably meant retrospection for the benefit of the public interest generally. He went on to say that it was not sufficient to say that in these cases the sovereignty of this Parliament must prevail and that a written constitution would prevent that. A written constitution would substitute the so-called tyranny of Parliament for the tyranny of the courts and the judges. They would interpret the written constitution. If there is to be a sovereignty anywhere I would prefer it to be in the hands of an elected body than in the hands of institutions that are accountable to no one.
The principle of retrospection can, I believe, apply not only if an individual or a group of individuals are to be benefited. I believe also that individuals can be penalised retrospectively where that is for the national interest as a whole. But the case for propounding that must be very powerful and persuasive.
When I came to this debate I was inclined to say that I believed that the principle of the rule of law should in no circumstances be infringed. But having heard what my right hon. Friend the Chief Secretary said—[Interruption.] I hope that hon. Members will acquit me of


any kind of humbug in these matters. If I were not convinced by my right hon. Friend's case I would have no hesitation either in going home now or voting against the Government.
If my right hon. Friend's case were put in lay terms among the people I represent they would agree with me that financial thuggery and crookery was going on, and they would refuse to pay their taxes. I remember Mr. Douglas Houghton, as he then was, saying in this House that there were two groups of taxpayers in this country—the pay as you earn and the pay as you like. That is what we are discussing tonight. The case that my right hon. Friend advanced ought to have been heard by the miners. I referred to the miners in another context last night. I always refer to them. When we talk about taxpayers being dishonest and moonlighting we should realise that the PAYE taxpayer is seriously limited in what he can do in tax avoidance.
When the right hon. and learned Member for Surrey, East was talking about moonlighting he failed to point out that the great moonlighters in this country are on the Conservative Benches. There are more than a hundred lawyers in this House on both sides, and they are the biggest moonlighters in the country. So let no one pretend that moonlighting concerns only the fireman who climbs a ladder to clean a few windows. The lawyers here go to the Law Courts in the morning and refuse to serve on Committees so that they can earn their corn.
One of the reasons that induces me to support the Government tonight, quite apart from my right hon. Friend's powerful case, was what was almost the injunction by Mr. Bernard Levin in The Times this morning to some of us on the Labour Benches to oppose the Government. That is a very good recommendation for supporting the Goverment. I hope that all my hon. Friends will do the same. There has been no argument of principle from the Opposition on this matter, and I see no reason why in a case like this the Government should not act retrospectively. My right hon. Friend quoted the figures which showed that we are concerned here with £200 million and only a handful of people. If the Government cannot take action retrospectively to deal

with that, it is not worth being in Government. So long as this House is sovereign in the end over that kind of possible abuse, I am happy to leave it in its hands.

11.0 p.m.

Mr. Douglas Crawford: I am sorry that the hon. Member for York (Mr. Lyon) is no longer with us, because I am sure that he would agree that I can dissociate the Liberals and my hon. Friends in the Scottish National Party from his comments about what the Conservatives did in the legislation he was talking about and the retrospective way in which that was carried through. I am sure that the hon. Member for Cornwall, North (Mr. Pardoe) will agree that we would want no part of that.
It is an open secret that the SNP has been in considerable difficulty over this matter. Hon. Members laugh, but this is a matter of principle. The right hon. and learned Member for Surrey, East (Sir G. Howe) made a fairly philosophical speech. I would ask him, philosophically, whether we are concerned here with morality or legality or a bit of both. When does morality prevail over legality and vice versa. Retrospection is retrospection is retrospection. It is all very well for the right hon. and learned Gentleman to chose the arbitrary date of 25th November last year as opposed to 6th April 1976. He said that that was the date of the announcement, but that is not the date when legislation took place. A principle is a principle is a principle.
The hon. Member for Mid-Sussex (Mr. Renton) said—I hope that he will forgive me if I took down his words incorrectly —"There is a case for retrospective legislation if it is to right a wrong." The Government are trying, belatedly, to right a wrong.

Mr. Tim Renton: Just to put the hon. Gentleman right, I said that that was so if it was to right a wrong suffered by an individual in the past.

Mr. Crawford: I accept what the hon. Gentleman says, but what the Government are doing—there is no Labour-SNP pact tonight—is trying to right not an individual but a collective wrong. The hon. Gentleman made a good Oxford Union speech, in what the Chief Secretary


described as his usual elegant style. But he said that we were sniping at the corpus of law. On this Bench, we can quote J. B. Priestley, who said that England will always play the game by the rules until she starts to lose, and then she will change the rules.
We are talking about the rule of law, about the principle of one man, one vote. Many hon. Members, on both sides, including some who are here tonight, sought to change the rules on the referenda on the Scotland and Wales Bills. As one of my hon. Friends said earlier, quoting someone else, there will come a time when Britannia waives the rules.
The right hon. and learned Member for Surrey, East also said—I hope that he will forgive me if I took down his words incorrectly—"Tax avoidance is a legitimate means of challenging the rule of a confiscatory tax system." But we live with a tax system and whether or not we think that it is confiscatory, it is the law, and the right hon. and learned Gentleman cannot flout it. The hon. Member for Caernarvon (Mr. Wigley) will know what is happening with regard to the rule of law in Carmarthen just now.
Reluctantly, I must refer to what Mr. Bernard Levin said in The Times this morning:
But is there none among the more genuinely independent spirits who will abstain or even vote the right way …?…Mr. William Hamilton? … Mr. Sandelson?
He also said:
The Scottish Nationalists are said to be planning to vote en bloc against it.
We are not.
How many of the Ulster Unionists Mr. Powell can carry into the No lobby is not yet clear".
This is 12th July, and many of them will be in Ulster, not here.
I heard what the Chief Secretary said about tax avoidance. Reluctantly, I am persuaded that on this issue in the last resort pure morality must prevail over legality. We cannot allow these amounts of money to be lost by the Treasury. The spirit of law must prevail.

Mr. Nick Budgen: Hon. Members will want to concentrate on the important decision whether they should vote for amendment no. 79 or amendment no. 5—or both—

and where they should indicate their preference.
I wish to deal with the argument of favouring legislation which has a retrospective effect, and I also wish to deal with the forceful and eloquent speech made by the hon. Member for York (Mr. Lyon). He said that it was wrong to legislate in a way that would have a retrospective effect on the immunities enjoyed by certain illegal immigrants. He thought that it was disgraceful to kick a minority around. Any law on citizenship must have a retrospective effect. The basis of the law on citizenship lies in defining whether a person is or is not a citizen. That is bound to confer benefits on some people and on other occasions is equally bound to confer disadvantages. It must be second category in respect of which retrospective legislation is necessary.
The argument advanced by the hon. Member for York was illogical. He said to the Opposition "You kicked this small unpopular minority of immigrants around. That was a disgraceful thing to do", but then went on "You have done this disgraceful thing. We will continue to do it". His view is "We believe that Messrs. Tucker and Bradman are a disagreeable pair. Let us kick them." If that argument is good in respect of immigrants, it is also a good argument in respect of Messrs. Tucker and Bradman. He should be on our side in dealing with retrospection.

Mr. Lyon: It is easy to set up a false argument and knock it down. I suggested that in every case the House had to balance the competing factors and that in the case of the Immigration Act 1971 the enormity of what was done then so outweighs anything that can be alleged in this case that the two are not directly comparable. In this case the overwhelming weight of argument falls in favour of the Government Front Bench.

Mr. Budgen: The hon. Gentleman said that it was an unfair attack on a minority, but on the other hand he said that he did not like the particular minority that the Labour Party dislikes and therefore on this occasion will join the mob.
I wish to deal with the arguments advanced by my hon. and learned Friend


the Member for Dover and Deal (Mr. Rees) to support his timing—namely, 25th November 1977. I regret the way in which my hon. and learned Friend spoke of the unmeritorious nature of the scheme. He seemed to point to that as a factor that would justify him in selecting 25th November 1977. I see that my hon. and learned Friend the Member for Dover and Deal indicates dissent. I am grateful to him. I am glad that is so. I am glad that I misunderstood what my right hon. and learned Friend the Member for Surrey, East (Sir Geoffrey Howe) said.
I entirely agree with the hon. Member for Cornwall, North (Mr. Pardoe) on this point. He was right to say that, if we are seen to attack any minority by retrospective legislation, we undermine the legitimacy of the whole tax system. No matter how unpopular any minority may be and however much the mob may think at any moment "It would be a good idea to kick X", all of us know that at some stage or another we shall be in the minority. On any basis, it will undermine our sense of fairness and of legitimacy if we allow ourselves to attack a minority in a dubious constitutional way because we see it as being unpopular and lacking in merit.
The real reason for my right hon. and learned Friend the Member for Surrey, East supporting 25th November 1977 is that he sees it as supporting the Rees rules as adumbrated by my hon. and learned Friend the Member for Dover and Deal in Committee. The Rees rules are important. There is no doubt that the Tory Party, as all parties when in power, has done things of which it should be ashamed. I hope that in future the Labour Party will be ashamed of what it is seeking to do tonight. No doubt it will be ashamed when it gets back into Opposition.
The Rees rules are important, because they indicate how the Tory Party will behave when it is next in power. I believe that in looking at these rules we should have in mind the importance of certainty in all tax legislation. We should also have in mind the overriding importance that tax legislation should be approved and decided by the House of Commons, not by any outside body.
I derive support for that proposition from a most important and informative Addington Society lecture given by my right hon. and learned Friend the Member for Surrey, East Reported in the British Tax Review in 1977. In talking about the need to have a consultative and scrutinising body which would assist the Commons, he said:
It is, however, difficult to imagine that Parliament would ever accept the idea of handing such powers of scrutiny over to a lay committee".
I agree with him on that matter.
My hon. and learned Friend the Member for Dover and Deal introduced his rules as reported at column 719 in Committee. I think that it is important to look at the way in which he introduced them. In fairness to him, I would say that he introduced them with a considerable note of apology. For instance, when he introduced the third of his rules, he said:
Thirdly, if the committee can hit on an appropriate legislative provision, the draft clause—I call it a draft clause although at this point of time it cannot, in fact, be a clause".—[Official Report, Standing Committee A, 6th June 1978; c. 719.]
When he said that, in a suitably apologetic mood, he knew perfectly well that the whole concept of giving a professional body the duty and right to put forward draft clauses was likely to be objectionable to the House of Commons. He knew perfectly well that if that professional body was set up there would always be the risk that it might wish to disadvantage one particular scheme, or one particular set of people, and that it would be making decisions not of a technical nature but of a substantive nature. He knew perfectly well also that once that draft clause, as it might be called, had been put forward there would be a feeling in the House of Commons that people had altered their business affairs in conformity with that draft clause and it would be very difficult, in all fairness, for the House of Commons to change the draft clause.
I hope that we shall not adopt the Rees rules. I hope that we shall stick to what is admittedly a more purist line and shall not in the future perpetuate the wrongs that we may well have perpetrated in the past. All power does corrupt, but let us at least in opposition adumbrate


some clear honest lines and not suggest that even at this stage we are contemplating the necessary shifts and evasions that power may force upon us.

11.15 p.m.

Mr. Malcolm Rifkind: The House is unanimous that the proposals that clause 27 seeks to prevent, the various tax avoidance schemes, are objectionable and that the Government are right to take action to try to terminate them. There are two points of dispute that the House has to decide tonight: whether the date from which this retrospective legislation should take effect should go back two years to a time when not only was this activity not illegal but no warning had been given by the Government of an intention to legislate, or whether, as my right hon. Friends have suggested, at the very least it should be retrospective only to the date when the Government gave warning of their intention to produce such legislation.
All on this side of the House, and I hope at least some hon. Gentlemen on the Government Back Benches, will accept that whatever the need for this clause, however unfortunately necessary retrospective legislation might be on occasion, it is totally intolerable, improper and unnecessary that the retrospective nature of this legislation should date back to a time when not even any intention to legislate had been announced by the Government.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) put forward a powerful case in support of the amendment, but the only explanation that the Chief Secretary was able to give why it was not accepted as a reasonable compromise to meet the legitimate requirements of the Government—he suggested that the clause should be retrospective only to the date when the Government announced their intention to legislate—was that such an amendment, if implemented, would frustrate the desire of the Government because immediately new schemes would be submitted to the Treasury for other similar tax avoidance measures.
I have no doubt that the Chief Secretary is right that new schemes will be submitted, but what the right hon. Gentleman did not indicate was why, when such

schemes were submitted, he or the Government could not then indicate a similar intention to legislate to make those measures illegal and, indeed, to make them illegal retrospective to the date of their announcement. Of course it is not a particularly cosmetically attractive method but it would be a way of ensuring that some of the basic rights of the citizen were not unnecessarily infringed and harmed in the way that the Government are proposing.
There is a second issue which the House has to resolve this evening, and that is whether this curious unholy alliance between the hon. Member for Cornwall, North (Mr. Pardoe) and my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) who say that the proposal should be retrospective only to the date of the Budget resolution, should prevail over the view of my right hon. and learned Friend the Shadow Chancellor of the Exchequer that it should be retrospective only to the date on which the Government announced an intention to legislate.
I hope the House will be clear that the issue of retrospection itself is not in dispute between these two possible amendments, because, despite the arguments being suggested by my hon. Friend the Member for Wolverhampton, South-West, even in the amendment which he wishes the House to accept, and which the hon. Member for Cornwall, North puts forward, there is an acceptance of retrospection. It is accepting that the clause should take effect retrospective to April of this year, for the reasons that were given.
I suggest to the House that the issue is not one of principle in choosing between the two amendments, but whether the common grounds of fairness and the normal criteria of the rule of law would be adequately met by the official Opposition amendment. In this case there is no reason to dispute that it would be so, because the question of fairness depends not simply on whether the activity in question was illegal at the time but on whether the person concerned, when carrying it out, had reason to believe that there would be retrospective legislation to cover it. If he had no reason to believe, not only that the activity was unlawful, or not permitted, or contrary to


the law, but that there was no intention retrospectively to make it unlawful, it clearly would be grossly unfair to penalise him for any actions he took at that time.

Mr. Graham Page: Would my hon. Friend extend his argument to the fourth amendment, which covers the date when there was an announcement, a warning, of retrospective legislation, though the Government took 18 months, passed a Finance Bill and so on, without taking any action? Is not that also wrong?

Mr Rifkind: I certainly agree with my right hon. Friend that if there were unconscionable, unjustifiable and unnecessary delay between the date of a Government announcement and the date when the law was passed by the House that would be unacceptable. But what we are talking about now is an amendment which suggests that the law should be retrospective only, I think, to November of last year. Clearly, this is the first opportunity in the Bill to implement the promise or warning that the Government made then.
The matter must be dealt with cautiously, because there are dangerous problems involved. But when those conditions have been fulfilled, as they have on this occasion, it is unnecessary for the hon. Member for Cornwall, North to take the line that he takes. He would like the House to believe that he is taking his position based on principle and hostility to retrospection. In fact, his amendment concedes that some element of retrospection is necessary. I shall be happy to give way if he will explain how some element of retrospection is not involved in the amendment which he asks the House to accept.

Mr. Pardoe: The fact of the matter is that it has become accepted by all parties in the House over a long period—

Mr. Budgen: And justified by law.

Mr. Pardoe: Yes. It has become accepted that what is said in the Budget Statement is enacted therefrom. Indeed, a large part of the whole Finance Bill starts from the Budget Statement. Therefore, for the hon. Gentleman to suggest that the things said in the Budget Statement and enacted from that date are in any way retrospective legislation is a total misuse of the word "retrospection", and

the hon. Gentleman knows it perfectly well.

Mr. Rifkind: I do not know it perfectly well, because all that the hon. Gentleman has said it that it has become accepted that it is fair and reasonable that legislation retrospective to the date of the Budget Resolution should be acceptable to the House and to the country. But the hon. Gentleman knows perfectly well that a statement made in the Budget may not eventually pass into law. The House may this evening throw out any element of retrospection. Indeed, it could have removed the whole clause from the Bill. That was almost done in Standing Committee. If that happened, a statement made at the time of the Budget would not have turned into law and an attempt to create restrospective legislation would not have applied.
Any proposal, as put forward by the hon. Gentleman, to make this legislation take effect from four months ago must inevitably be retrospective. It is nonsense to suggest otherwise. Therefore, the proper amendment to accept is that put forward by my right hon. and learned Friend.

Mr. Peter Rees: It is trite to observe that these are three very important amendments and that they have generated an extremely important debate. The House has been called on to consider first the question of tax avoidance and then a constitutional question of what I conceive to be considerable significance.
I ask the House to look at the question of tax avoidance first against the tax system as a whole. I imagine that I shall not entirely carry Labour Members with me when I say that tax avoidance has become more acute of late because of the tax system under which we labour at present. It is complex and the rates are high. Indeed, on other, perhaps unrelated, occasions, even the Treasury Front Bench would be prepared to concede those two propositions.
I think that it was the hon. Member for Fife, Central (Mr Hamilton) who was disposed to demur when some of my hon. Friends commented that tax avoidance and indeed tax evasion were rife throughout our society. The hon. Gentleman remarked that lawyers were the greatest moonlighters in the House. I must declare a personal interest as a lawyer, but


one who has sat on every Standing Committee on the Finance Bill but one, I think, since 1970. I have emerged bloody but I hope unbowed after six weeks in Room 10 upstairs—an experience that I shared with another lawyer, the Minister of State. These are, perhaps, personal disclaimers.

Mr. Eric S. Heffer: The hon. and learned Gentleman would have been better off if he had been moonlighting.

Mr. Rees: The hon. Gentleman is absolutely right in a financial and professional sense. I would have been far better off. I hope that I shall not sound arrogant in saying that I hope I was able to make some small contributions to our debates in Committee.
I think it is also right to observe that the Revenue does not come to this problem entirely with clean hands, and that there are on the statute book a variety of provisions which have been criticised both inside and outside this House, and by the courts which have been called on to construe them. Since the hour is late, I shall not take the House through the details of those provisions. But I suggest to the Chief Secretary that if he wants to command universal acceptance for the tax system which he is commending to the House, he would be well advised to go through the whole tax code with his advisers to see whether there is not a whole range of provisions which from at this late stage could well be pruned off the statute book.
The Chief Secretary, in referring to tax avoidance, spoke of those who deliberately flout the intention of Parliament. The question we have to ask ourselves is this: how can the intention of Parliament be gleaned except from the statutes which we enact? We are all aware that the legislative process is a rather imperfect one, and that we do not always produce the finely tuned, finely designed, finished article that we had in mind when we set our hands to the task. But those outside this House are not required to look into our minds or even required to study very closely the speeches we make in our debates. They are concerned only with the finished articles and the statutes which reach the statute book. It is, in a sense, begging the question to suggest that tax avoidance is constituted where people

flout the intention of Parliament. That cannot as readily be gleaned as the Chief Secretary would have us believe.
Beyond that, the mood of the House changes considerably on these questions. What is avoidance in one era becomes accepted fiscal practice in another. Before Labour Members lightly dismiss that proposition, I merely ask them to consider clause 21, which we have already passed, which has enlarged the reliefs for golden handshakes. I daresay that 10 years ago no one on the Labour side would have had a good word to say for golden handshakes. Indeed, there would have been considerable pressure to diminish even the limited reliefs that were offered by the Finance Act 1960. But times have changed and it has now been realised that very many people in constituencies represented by Labour Members will lose their jobs through the rundown of the steel industry. They will be given golden handshakes.
By a surprising turn of events, the Government have commended to us a provision designed deliberately to raise the limit so as to take people in the steel industry out of the charge to tax. I do not grudge them that relief. I merely give it to the House as an instance of a change in climate, showing that what was avoidance in one year becomes accepted practice in another.
I shall not suggest that the scheme at which the Chief Secretary has aimed his darts will ever become accepted practice. That would probably strain the credulity and imagination of the House a little too far. I am not entirely certain that the Chief Secretary understands the scheme. Certainly the amendments, moved so ably by my hon. Friend the Member for Tynemouth (Mr. Trotter), demonstrated rather clearly—although the House was somewhat empty at the time—that the Chief Secretary did not realise at what point of time the loss, and therefore the relief, would be generated. But he has presumably behind him advisers who are able at a later stage to take him aside and point out to him the error of his ways.
11.30 p.m.
The Chief Secretary was a little disposed to inflame the debate by talking about a sum of £200 million being at stake. I do not know how he can possibly tell the


House what is at stake, because at an earlier stage, as the House will recall, the Chancellor of the Exchequer said that these schemes were hedged around with a secrecy which amounted to a conspiracy of silence.
But still, let us divide £200 million by four. A sum of £50 million pounds would be a considerable sum. I agree that it is a problem that we must face squarely.
So again, it is possible that I may lower slightly the temperature of debate—[Hon. Members: "Oh."] We must try to approach these problems dispassionately. I know that on occasions I have been guilty of the fault that I am attributing to the Chief Secretary.
The Chief Secretary was disposed to say that these were schemes largely undertaken by corporations. The House should know at once that the scheme at which this clause is aimed could be undertaken only by an individual. So again, I am not entirely persuaded that the Chief Secretary has understood the dimensions of the problem. I suspect that he has, perhaps, been a little overborne by the pressures of the last few months. The load of his office has, perhaps, proved too much for him. Perhaps he deserves a little rest. Perhaps we shall afford him that rest quite soon.
Again, there is a certain ambivalence in his approach to this problem because he told his hon. Friend the Member for Hayes and Harlington (Mr. Sandelson)—whose conscience so obviously needed assuaging this evening—
The Revenue tells me that it does not recognise the ensuing claims as valid under existing law."—[Official Report, 25th November 1977; Vol. 939, cc. 965–66.]
I have no doubt—and this is the only possible inference to be drawn from that reply—that the Inland Revenue has taken counsel's advice—perhaps from some moonlighting lawyer who knows?—perhaps even from the Solicitor-General, who by custom and practice, is prone to advising the Government on matters of this kind.
If indeed the Inland Revenue has received solid assurance from its legal advisers that it is bound to win in the courts, then I hope that it is testing these schemes and I hope that it will be proved right.

I hope that the advice that has been given to the Inland Revenue is good. If the advice that has been given is good, the particular mischief of this scheme is unimportant. We are beating the air. We are being asked to perpetrate a constitutional monstrosity for no very good reason whatever.
I think that the Chief Secretary would have been well advised, perhaps, to defer asking the House to enact this clause until the courts have pronounced that the advice given to the Inland Revenue was wrong, if indeed it was.
But let us accept that the problem of tax avoidance is one that must be faced squarely by an Administration of whatever complexion. Indeed, this is a problem that has faced Conservative Administrations. For all I know, it may well have faced Sir William Harcourt back in 1894. But still, I do not think that it is necessary at this hour to take the debate so far. [HON. MEMBERS: "Hear, hear."] I am sorry that the antecedents of the Lib-Lab pact are not proving as interesting to Labour Members as I had hoped.
At an earlier stage in this debate, the Chief Secretary was disposed to say that no practical solution had been offered to the Government. I rather demur at that because I ventured to put a suggestion to the Government in Standing Committee. I asked them at least to consider the possibility of a general anti-avoidance provision, such as the Australians have laboured under for many years and, indeed, such as this country had in regard to profits tax introduced by the Finance Act 1951. But obviously my advice fell on deaf ears. The Chief Secretary was lukewarm almost to the point of frigidity about that suggestion. He was not disposed to take it up or to examine it. It may well be that after close examination it would not even commend itself to my right hon. and hon. Friends. But at least that is something that the Government should have explored before coming to the House with this provision.
Let us accept for the purposes of this debate that there are difficulties about that solution. Certainly it is not one which we have been asked to consider by the Chief Secretary tonight.
How is this matter to be met? It is to be met by legislation. Here I am led


on to the whole question of retrospection. There is a purist view, which was perhaps most elequently and logically deployed by the right hon. Member for Down, South (Mr. Powell) in our debate upstairs. It was slightly less logically and elegantly deployed by the hon. Member for Cornwall, North (Mr. Pardoe) in our debate this evening. I have great sympathy with that point of view. I have been forced off it with considerable reluctance, although I should say to the hon. Member for York (Mr. Lyon), not by a recollection of any part that I may have played in the debate on the question of immigration. I am bound to say that I think he gave the House a false analogy, but perhaps there will be another occasion when we can debate that.
I do not like to bandy the phrase "the rule of law", because perhaps it has a slightly trite, almost pedagogic ring about it. It is perhaps too closely associated with the legal profession, and I do not think that we should look at this tonight as lawyers, if indeed we are. I think that this is a matter of constitutional significance which we have to judge as parliamentarians.
If on the other hand we are reluctant to accept the position that one can at no point legislate retrospectively, it will be very difficult indeed to counter schemes of this kind. I give this point to the Chief Secretary. Therefore, how, as a matter of practical politics, are we to deal with the question of avoidance, at least in this very sophisticated area? Again I give this to the Chief Secretary. The schemes are sophisticated. I do not think that they are hedged around with a secrecy which amounts to a conspiracy of silence. I have read about this in the press, as presumably has the Chief Secretary, because the answer which he gave to his hon. Friend the Member for Hayes and Harlington referred specifically to an article in The Sunday Times.
If, however, our legislation is to infringe what is generally considered to be a basic constitutional precept that it should not be retrospective, how are we to frame it. This is how the rules which have been ascribed to me by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) come into play. I believe that the root principle is that a person should be on notice of

what the consequences are likely to be if he embarks on a particular scheme or a particular venture. Of course, there is a certain sanctity about the law and, of course, subject on the whole are not required to follow our debates. They are entitled to say "We stand on the statute book". But still, I think that the underlying principle is that everyone should be on notice about what the consequences of his acts are likely to be if he embarks upon them.
This is where these rules have been devised. As I said, I am a little coy about accepting their paternity because I believe that they are distilled from that experience of situations with which this House has been faced over a considerable period of time, both under Labour and Conservative Administrations. Indeed, the right hon. Member for Down, South took us back to what he called the "Black and Lord" amendments of 1948. The House has certainly been debating these matters for some 30 years, and I have no doubt for longer than that. Indeed, my right hon. and learned Friend suggested that there were precedents even before the war.
The virtue of these rules would be—I do not need to go over them again, because—[HON. MEMBERS: "Hear, hear".] I am bound to say to all those hon. Members who cheered so loudly when I disclaimed any intention of repeating them that I did not notice them in the House at the time my right hon. and learned Friend gave them to the House. As they were not, they may not perhaps entirely appreciate the consistency and good sense of the position which we Conservatives are adopting. Still, I have no doubt that before those hon. Members come to form a view and vote in the Division, they will refer to the debates which we had in Committee on 6th June.
These rules would at least have this merit. They would ensure that those who embarked on these schemes would, from the moment that the announcement was first made, be on notice that they were at risk. From the moment that the reform committee which meets at Somerset House had considered and formulated a possible clause, they would know with a certain accuracy the kind of countermeasures which would be taken. Finally, of course, they would be assured that


these matters would be debated closely by this House at the earliest opportunity.
May I attempt to reassure my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) that there is no question of delegating our responsibilities to the reform committee? It is merely that it is a convenient body—it may be that another body occurs to my hon. Friend—which can look into the technicalities of this matter and produce perhaps more rapidly than would otherwise be the case, the kind of provision which we should have to consider in the next Finance Bill.
But then it is of crucial importance that the House should at the earliest opportunity consider these matters in the very next Finance Bill. This is where the Opposition take particular exception to clause 28, which has not been the subject of detailed debate. There, the warning was given—I concede that the initial warning was of a relatively precise kind—some two or more years ago, and there was ample opportunity in the last Finance Bill for the Government to have embodied this clause, had they so willed. I do not believe it is right that taxpayers should be left in a state of continuing uncertainty for a period of years.
This is the basis of the amendments. Amendment No. 5 would take Clause 27 back to 25th November last year, which was the date given by the Chief Secretary in a reasonably precise answer to a reasonably precise question. I agree that this matter was not referred to the tax reform committee, but this is perhaps a provision for the future. I concede that it has been embodied in legislative form for this House to debate and consider in some detail at the earliest opportunity. We say, with a certain reluctance but based on precedents that this House has accepted in the past, that this amendment is one which we would find acceptable. It is a compromise which we have designed to assuage the delicate susceptibilities of the Chief Secretary, who has got this problem a little out of perspective. However, if the right hon. Gentleman will not accept this carefully nurtured olive branch, the only consistent course for the Opposition will be to vote for amendment no. 79 which would make this provision law from the date of the Budget Statement.
It will be for the House and for the country outside to judge who has leaned over backwards to observe the constitutional proprieties and to meet a problem which we all recognise to exist.
On clause 28, I commend to the House amendment no. 6, which would make the clause operative only from 6th April, and that is because, consistently with the rules which my right hon. and learned Friend spelled out to the House, the Chief Secretary has failed to put the clause before the House at the earliest opportunity.
I end on this note—[HON. MEMBERS: "Hear, hear."] I am glad that I carry right hon. and hon. Members with me on this. We are fortunate in some ways and unfortunate in others in not having a written constitution. If our constitution can be spelled out, it depends on precedent and convention. If we enact these two clauses in their present form, we shall embody in our constitution a practice and a precedent which we shall regret in years to come.
I know that Government supporters have a particular horror and detestation of tax avoidance. But, before they go into the Division Lobby, they might care to ponder to which areas of public and private endeavour with which they are particularly concerned—and my right hon. and learned Friend gave one instance—the principle of retrospection which the Chief Secretary asks them to support might be applied. As he observed in Committee, this is a novel use of the weapon of retrospection.
It is not designed precisely to hit a target that has been described in advance. It is avowedly designed to create uncertainty in a field where the subject is entitled to certainty. I hope that the whole House will ponder on the consequences of passing this clause unamended tonight, and will, on reflection, accept amendments nos. 5 and 6.

11.45 p.m.

Mr. Joel Barnett: The hon. and learned Member for Dover and Deal (Mr. Rees) asks me how I know that those concerned with these schemes are flouting the intention of Parliament. Let me explain. Let us suppose that the man we are talking about enters into a partnership in a company for a fee in return for which he agrees to leave that company when he


has made a sufficient loss and before it starts to make a profit. I can only describe that as an artificial scheme. I know that the hon. and learned Member does not like such schemes and nor do I.
The hon. and learned Member also suggested that genuine cases might be caught. Genuine companies and genuine people do not normally enter into a partnership with a company in order to make a loss and sign an agreement to leave before that company makes a profit. That is a somewhat unusual partnership, to say the least.
Everybody wants to stop these schemes. But nothing the hon. and learned Gentleman, or any of his hon. Friends have said tonight will stop them. Nor will it stop the industry. The courts, we are told, should deal with them. Perhaps they will find in favour of these schemes, perhaps they will not. What we do know is that, in these circumstances, tax avoidance would be able to continue and thrive.
The other amendment that the hon. and learned Member is recommending would go back to the date of the warning in November 1977. But he knows that by donig that we should not stop the industry from pursuing schemes of an identical kind. We are dealing with a few people who are able, at the expense of millions of taxpayers, to avoid large sums of money in tax payments.

We are voting tonight not for retrospection in general, but for retrospection in a narrow sense to stop an industry which is taking or seeking to take, hundreds of millions of pounds at the expense of millions of taxpayers who pay their taxes regularly. On top of that one must understand that this case and every future case would have to be approved by the House of Commons before the scheme could be stopped.

This is a novel form of retrospection, I agree. The kind of penalty we are talking about will not put people in prison, as was proposed by the Conservatives in legislation in 1971. It will not remove the status of individuals on a large scale. It will remove from a few people the opportunity to avoid tax at the expense of many. That is what we are doing tonight.

We must balance our repugnance about retrospection in legislation with the other objective and consider whether we should allow our democratic society to be held in contempt by a few people for very large sums of money at the expense of the rest of the community. Therefore, I urge my hon. Friends to dismiss the amendments.

Question put, That the amendment be made:—

The House divided: Ayes 248, Noes 275.

Division No. 264]
AYES
[11.50 p.m.


Adley, Robert
Buck, Antony
Edwards, Nicholas (Pembroke)


Aitken, Jonathan
Budgen, Nick
Elliott, Sir William


Alison, Michael
Bulmer, Esmond
Emery, Peter


Arnold, Tom
Burden, F. A.
Eyre, Reginald


Atkins, Rt Hon H. (Spelthorne)
Butler, Adam (Bosworth)
Fairgrieve, Russell


Atkinson, David (B'mouth, East)
Carlisle, Mark
Farr, John


Baker, Kenneth
Chalker, Mrs Lynda
Fell, Anthony


Banks, Robert
Channon, Paul
Finsberg, Geoffrey


Bell, Ronald
Churchill, W. S.
Fisher, Sir Nigel


Bendall, Vivian
Clark, Alan (Plymouth, Sutton)
Fletcher, Alex (Edinburgh N)


Bennett, Sir Frederic (Torbay)
Clarke, Kenneth (Rushcliffe)
Fletcher-Cooke, Charles


Bennett, Dr Reginald (Fareham)
Cockcroft, John
Fookes, Miss Janet


Benyon, W.
Cooke, Robert (Bristol W)
Forman, Nigel


Berry, Hon Anthony
Cope, John
Fox, Marcus


Biffen, John
Cormack, Patrick
Galbraith Hon T. G. D.


Biggs-Davison, John
Corrie, John
Gardiner, George (Reigate)


Blaker, Peter
Costain, A. P.
Gardner, Edward (S Fylde)


Body, Richard
Craig, Rt Hon W. (Belfast E)
Gilmour, Rt Hon Sir lan (Chesham)


Boscawen, Hon Robert
Crouch, David
Gilmour, Sir John (East Fife)


Bottomley, Peter
Crowder, F. P.
Glyn, Dr Alan


Bowden, A. (Brighton, Kemptown)
Davies, Rt Hon J. (Knutstord)
Godber, Rt Hon Joseph


Braine, Sir Bernard
Dean, Paul (N Somerset)
Goodhart, Philip


Brittan, Leon
Dodsworth, Geoffrey
Goodlad, Alastair


Brocklebank-Fowler, C.
Douglas-Hamilton, Lord James
Gorst, John


Brooke, Hon Peter
Drayson, Burnaby
Gow, lan (Eastbourne)


Brotherton, Michael
du Cann, Rt Hon Edward
Gower, Sir Raymond (Barry)


Brown, Sir Edward (Bath)
Durant, Tony
Grant, Anthony (Harrow C)


Bryan, Sir Paul
Dykes, Hugh
Gray, Hamish


Buchanan-Smith, Alick
Eden, Rt Hon Sir John
Grieve, Percy




Griffiths, Eldon
Macmillan, Rt Hon M. (Farnham)
Rossi, Hugh (Hornsey)


Grylls, Michael
McNair-Wilson, M. (Newbury)
Rost, Peter (SE Derbyshire)


Hall-Davis, A. G. F
McNair-Wilson, P. (New Forest)
Royle, Sir Anthony


Hamilton, Archibald (Epsom &amp; Ewell)
Madel, David
Sainsbury, Tim


Hamilton, Michael (Salisbury)
Marshall, Michael (Arundel)
St. John-Stevas, Norman


Hampson, Dr Keith
Marten, Neil
Scott, Nicholas


Hannam, John
Mates, Michael
Scott-Hopkins, James


Harrison, Col Sir Harwood (Eye)
Mather, Carol
Shaw, Giles (Pudsey)


Harvie Anderson, Rt Hon Miss
Maudling, Rt Hon Reginald
Shaw, Michael (Scarborough)


Haselhurst, Alan
Maxwell-Hyslop, Robin
Shelton, William (Streatham)


Havers, Rt Hon Sir Michael
Mayhew, Patrick
Shepherd, Colin


Hawkins, Paul
Meyer, Sir Anthony
Shersby, Michael


Hayhoe, Barney
Miller, Hal (Bromsgrove)
Silvester, Fred


Heath, Rt Hon Edward
Mills, Peter
Sims, Roger


Higgins, Terence L.
Miscampbell, Norman
Sinclair, Sir George


Holland, Philip
Mitchell, David (Basingstoke)
Skeet, T. H. H.


Hordern, Peter
Moate, Roger
Smith, Timothy John (Ashfield)


Howe, Rt Hon Sir Geoffrey
Molyneaux, James
Spence, John


Howell, David (Guildford)
Moore, John (Croydon C)
Spicer, Jim (W Dorset)


Howell, Ralph (North Norfolk)
More, Jasper (Ludlow)
Spicer, Michael (S Worcester)


Hunt, David (Wirral)
Morgan, Geraint
Sproat, lain


Hunt, John (Ravensbourne)
Morris, Michael (Northampton S)
Stainton, Keith


Hurd, Douglas
Morrison, Charles (Devizes)
Stanbrook, Ivor


Hutchison, Michael Clark
Morrison, Hon Peter (Chester)
Stanley, John


Irving, Charles (Cheltenham)
Neave, Airey
Steen, Anthony (Wavertree)


James, David
Nelson, Anthony
Stewart, lan (Hitchin)


Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Neubert, Michael
Stokes, John


Jessel, Toby
Newton, Tony
Tapsell, Peter


Jones, Arthur (Daventry)
Normanton, Tom
Taylor, R. (Croydon NW)


Jopling, Michael
Onslow, Cranley
Taylor, Teddy (Cathcart)


Joseph, Rt Hon Sir Keith
Oppenheim, Mrs Sally
Tebbit, Norman


Kaberry, Sir Donald
Osborn, John
Townsend, Cyril D.


Kellett-Bowman, Mrs Elaine
Page, John (Harrow West)
Trotter, Neville


Kershaw, Anthony
Page, Rt Hon R. Graham (Crosby)
van Straubenzee, W. R.


Kimball, Marcus
Page, Richard (Workington)
Vaughan, Dr Gerard


King, Evelyn (South Dorset)
Pattie, Geoffrey
Viggers, Peter


King, Tom (Bridgwater)
Percival, Ian
Wakeham, John


Kitson, Sir Timothy
Peyton, Rt Hon John
Walder, David (Clitheroe)


Knight, Mrs Jill
Pink, R. Bonner
Walker, Rt Hon P. (Worcester)


Knox, David
Powell, Rt Hon J. Enoch
Walker-Smith, Rt Hon Sir Derek


Lamont, Norman
Prentice, Rt Hon Reg
Wall, Patrick


Langford-Holt, Sir John
Price, David (Eastleigh)
Walters, Dennis


Latham, Michael (Melton)
Pym, Rt Hon Francis
Warren, Kenneth


Lawrence, Ivan
Raison, Timothy
Weatherill, Bernard


Lawson, Nigel
Rathbone, Tim
Wells, John


Le Marchant, Spencer
Rees, Peter (Dover &amp; Deal)
Whitelaw, Rt Hon William


Lester, Jim (Beeston)
Rees-Davies, W. R.
Whitney, Raymond


Lewis, Kenneth (Rutland)
Renton, Rt Hon Sir D. (Hunts)
Wiggin, Jerry


Lloyd, lan
Renton, Tim (Mid-Sussex)
Winterton, Nicholas


Loveridge, John
Rhodes James, R.
Wood, Rt Hon Richard


Luce, Richard
Rhys Williams, Sir Brandon
Younger, Hon George


McCrindle, Robert
Ridley, Hon Nicholas



Macfarlane, Neil
Ridsdale, Julian
TELLERS FOR THE AYES:


MacGregor, John
Rifkind, Malcolm
Mr. John Stradling Thomas and


MacKay, Andrew (Stechford)
Roberts, Wyn (Conway)
Sir George Young.


NOES


Abse, Leo
Buchanan, Richard
Davidson, Arthur


Allaun, Frank
Callaghan, Rt Hon J. (Cardiff SE)
Davies, Bryan (Enfield N)


Anderson, Donald
Callaghan, Jim (Middleton &amp; P)
Davies, Rt Hon Denzil


Archer, Rt Hon Peter
Canavan, Dennis
Davies, Ifor (Gower)


Armstrong, Ernest
Carmichael, Neil
Davis, Clinton (Hackney C)


Atkins, Ronald (Preston N)
Carter-Jones, Lewis
Deakins, Eric


Atkinson, Norman (H'gey, Tott'ham)
Cartwright, John
Dean, Joseph (Leeds West)


Bagier, Gordon A. T.
Castle, Rt Hon Barbara
de Freitas, Rt Hon Sir Geoffrey


Bain, Mrs Margaret
Clemitson, Ivor
Dell, Rt Hon Edmund


Barnett, Guy (Greenwich)
Cocks, Rt Hon Michael (Bristol S)
Dempsey, James


Barnett, Rt Hon Joel (Heywood)
Cohen, Stanley
Dewar, Donald


Bates, Alf
Coleman, Donald
Doig, Peter


Bean, R. E.
Concannon, Rt Hon John
Dormand, J. D.


Benn, Rt Hon Anthony Wedgwood
Cook, Robin F. (Edin C)
Duffy, A. E. P.


Bidwell, Sydney
Corbett, Robin
Dunn, James A.


Bishop, Rt Hon Edward
Cowans, Harry
Dunwoody, Mrs Gwyneth


Blenkinsop, Arthur
Cox, Thomas (Tooting)
Eadie, Alex


Booth, Rt Hon Albert
Craigen, Jim (Maryhill)
Edge, Geoff


Boothroyd, Miss Betty
Crawford, Douglas
Edwards, Robert (Wolv SE)


Bottomley, Rt Hon Arthur
Crawshaw, Richard
Ellis, John (Brigg &amp; Scun)


Bradley, Tom
Cronin, John
Ellis, Tom (Wrexham)


Bray, Dr Jeremy
Crowther, Stan (Rotherham)
English, Michael


Brown, Hugh D. (Provan)
Cryer, Bob
Evans, Fred (Caerphilly)


Brown, Robert C. (Newcastle W)
Cunningham, G. (Islington S)
Evans, Gwynfor (Carmarthen)


Brown, Ronald (Hackney S)
Cunningham, Dr J. (Whiteh)
Evans, Ioan (Aberdare)


Buchan, Norman
Dalyell, Tam
Evans, John (Newton)







Ewing, Harry (Stirling)
McCartney, Hugh
Sedgemore, Brian


Fernyhough, Rt Hon E.
McDonald, Dr Oonagh
Selby, Harry


Fitch, Alan (Wigan)
McElhone, Frank
Sever, John


Flannery, Martin
MacFarquhar, Roderick
Shaw, Arnold (llford South)


Fletcher, Ted (Darlington)
McGuire, Michael (Ince)
Sheldon, Rt Hon Robert


Foot, Rt Hon Michael
MacKenzie, Rt Hon Gregor
Shore, Rt Hon Peter


Fowler, Gerald (The Wrekin)
Maclennan, Robert
Short, Mrs Renée (Wolv NE)


Fraser, John (Lambeth, N'w'd)
McMillan, Tom (Glasgow C)
Silkin, Rt Hon John (Deptford)


Freeson, Rt Hon Reginald
McNamara, Kevin
Silkin, Rt Hon S. C. (Dulwich)


Garrett, John (Norwich S)
Madden, Max
Silverman, Julius


Garrett, W. E. (Wallsend)
Magee, Bryan
Skinner, Dennis


George, Bruce
Mahon, Simon
Smith, Rt. Hon. John (N Lanarkshire)


Gilbert, Rt Hon Dr John
Mallalieu, J. P. W.
Snape, Peter


Ginsburg, David
Marshall, Dr Edmund (Goole)
Spearing, Nigel


Golding, John
Mason, Rt Hon Roy
Spriggs, Leslie


Gourlay, Harry
Maynard, Miss Joan
Stallard, A. W.


Graham, Ted
Meacher, Michael
Stewart, Rt Hon M. (Fulham)


Grant, John (Islington C)
Mikardo, lan
Stoddart, David


Grocott, Bruce
Millan, Rt Hon Bruce
Stott, Roger


Hamilton, W. W. (Central Fife)
Miller, Dr M. S. (E Kilbride)
Strang, Gavin


Hardy, Peter
Mitchell, Austin (Grimsby)
Summerskill, Hon Dr Shirley


Harrison, Rt Hon Walter
Mitchell, R. C. (Solon, Itchen)
Swain, Thomas


Hart, Rt Hon Judith
Molloy, William
Taylor, Mrs Ann (Bolton W)


Hattersley, Rt Hon Roy
Moonman, Eric
Thomas, Dafydd (Merioneth)


Hayman, Mrs Helene
Morris, Alfred (Wythenshawe)
Thomas, Jeffrey (Abertillery)


Healey, Rt Hon Denis
Morris, Rt Hon Charles R.
Thomas, Mike (Newcastle E)


Heffer, Eric S.
Morris, Rt Hon J. (Aberavon)
Thomas, Ron (Bristol NW)


Henderson, Douglas
Moyle, Rt Hon Roland
Thompson, George


Hooley, Frank
Murray, Rt Hon Ronald King
Thorne, Stan (Preston South)


Horam, John
Newens, Stanley
Tierney, Sydney


Howell, Rt Hon Denis (B'ham, Sm H)
Noble, Mike
Tilley, John


Hoyle, Doug (Nelson)
Oakes, Gordon
Tinn, James


Huckfield, Les
Ogden, Eric
Tomlinson, John


Hughes, Mark (Durham)
O'Halloran, Michael
Tomney, Frank


Hughes, Robert (Aberdeen N)
Orbach, Maurice
Torney, Tom


Hughes, Roy (Newport)
Orme, Rt Hon Stanley
Tuck, Raphael


Hunter, Adam
Ovenden, John
Urwin, T. W.


Irvine, Rt Hon Sir A. (Edge Hill)
Owen, Rt Hon Dr David
Varley, Rt Hon Eric G.


Irving, Rt Hon S. (Dartford)
Palmer, Arthur
Walker, Harold (Doncaster)


Jackson, Miss Margaret (Lincoln)
Park, George
Walker, Terry (Kingswood)


Janner, Greville
Parker, John
Ward, Michael


Jay, Rt Hon Douglas
Parry, Robert
Watkins, David


Jeger, Mrs Lena
Pavitt, Laurie
Watkinson, John


Jenkins, Hugh (Putney)
Pendry, Tom
Weetch, Ken


John Brynmor
Perry, Ernest
Weitzman, David


Johnson, James (Hull West)
Phipps, Dr Colin
Wellbeloved, James


Johnson, Walter (Derby S)
Prescott, John
White, Frank R. (Bury)


Jones, Alec (Rhondda)
Price, C. (Lewisham W)
White, James (Pollok)


Jones, Dan (Burnley)
Price, William (Rugby)
Whitehead, Phillip


Judd, Frank
Radice, Giles
Whitlock, William


Kaufman, Rt Hon Gerald
Rees, Rt Hon Merlyn (Leeds S)
Wigley, Dafydd


Kerr, Russell
Reid, George
Willey, Rt Hon Frederick


Kilroy-Silk, Robert
Richardson, Miss Jo
Williams, Rt Hon Alan (Swansea W)


Kinnock, Neil
Roberts, Albert (Normanton)
Williams, Alan Lee (Hornch'ch)


Lambie, David
Roberts, Gwilym (Cannock)
Williams, Rt Hon Shirley (Hertford)


Lamond, James
Robertson, George (Hamilton)
Williams, Sir Thomas (Warrington)


Latham, Arthur (Paddington)
Robinson, Geoffrey
Wilson, Gordon (Dundee E)


Leadbitter, Ted
Roderick, Caerwyn
Wilson, Rt Hon Sir Harold (Huyton)


Lestor, Miss John (Eton &amp; Slough)
Rodgers, George (Chorley)
Wilson, William (Coventry SE)


Lever, Rt Hon Harold
Rodgers, Rt Hon William (Stockton)
Wise, Mrs Audrey


Lewis, Ron (Carlisle)
Rooker, J. W.
Woof, Robert


Litterick, Tom
Roper, John
Wrigglesworth, Ian


Loyden, Eddie
Rose, Paul B.
Young, David (Bolton E)


Luard, Evan
Ross, Rt Hon W. (Kilmarnock)



Lyon, Alexander (York)
Rowlands, Ted
TELLERS FOR THE NOES:


Lyons, Edward (Bradford W)
Ryman, John
Mr. James Hamilton and


Mabon, Rt Hon Dr J. Dickson
Sandelson, Neville
Mr. Jim Marshall.

Question accordingly negatived.

Amendment proposed: No. 79, in page 21, line 1, leave out
'wholly before 6th April 1976'
and insert
'before 11th April 1978'.—[Mr. Pardoe.]

Question put, That the amendment be made:—

The House divided: Ayes 254, Noes 275.

Division No. 265]
AYES
[12.04 a.m.


Adley, Robert
Arnold, Tom
Baker, Kenneth


Aitken, Jonathan
Atkins, Rt Hon H. (Spelthorne)
Banks, Robert


Alison, Michael
Atkinson, David (B'mouth, East)
Bell, Ronald




Bendall, Vivian
Hamilton, Michael (Salisbury)
Page, Rt Hon R. Graham (Crosby)


Bennett, Sir Frederic (Torbay)
Hampson, Dr Keith
Page, Richard (Workington)


Bennett, Dr Reginald (Fareham)
Hannam, John
Pardoe, John


Benyon, W.
Harrison, Col Sir Harwood (Eye)
Pattie, Geoffrey


Berry, Hon Anthony
Harvie Anderson, Rt Hon Miss
Percival, Ian


Biffen, John
Haselhurst, Alan
Peyton, Rt Hon John


Biggs-Davison, John
Havers, Rt Hon Sir Michael
Pink, R. Bonner


Blaker, Peter
Hawkins, Paul
Powell, Rt Hon J. Enoch


Body, Richard
Hayhoe, Barney
Prentice, Rt Hon Reg


Boscawen, Hon Robert
Heath, Rt Hon Edward
Price, David (Eastleigh)


Bottomley, Peter
Higgins, Terence L.
Pym, Rt Hon Francis


Bowden, A. (Brighton, Kemptown)
Holland, Philip
Raison, Timothy


Brittan, Leon
Hordern, Peter
Rathbone, Tim


Brocklebank-Fowler, C.
Howe, Rt Hon Sir Geoffrey
Rees, Peter (Dover &amp; Deal)


Brooke, Hon Peter
Howell, David (Guildford)
Rees-Davies, W. R.


Brotherton, Michael
Howell, Ralph (North Norfolk)
Renton, Rt Hon Sir D. (Hunts)


Brown, Sir Edward (Bath)
Hunt, David (Wirral)
Renton, Tim (Mid-Sussex)


Bryan, Sir Paul
Hunt, John (Ravensbourne)
Rhodes James, R.


Buchanan-Smith, Alick
Hurd, Douglas
Rhys Williams, Sir Brandon


Buck, Antony
Hutchison, Michael Clark
Ridley, Hon Nicholas


Budgen, Nick
James, David
Ridsdale, Julian


Bulmer, Esmond
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Rifkind, Malcolm


Burden, F. A.
Jessel, Toby
Roberts, Wyn (Conway)


Butler, Adam (Bosworth)
Jones, Arthur (Daventry)
Ross, Stephen (Isle of Wight)


Carlisle, Mark
Jopling, Michael
Ross, William (Londonderry)


Chalker, Mrs Lynda
Joseph, Rt Hon Sir Keith
Rost, Peter (SE Derbyshire)


Channon, Paul
Kaberry, Sir Donald
Royle, Sir Anthony


Churchill, W. S.
Kellett-Bowman, Mrs Elaine
Sainsbury, Tim


Clark, Alan (Plymouth, Sutton)
Kershaw, Anthony
St. John-Stevas, Norman


Clarke, Kenneth (Rushcliffe)
Kimball, Marcus
Scott, Nicholas


Cockcroft, John
King, Evelyn (South Dorset)
Scott-Hopkins, James


Cook, Robin F. (Edin C)
King, Tom (Bridgwater)
Shaw, Giles (Pudsey)


Cope, John
Kitson, Sir Timothy
Shaw, Michael (Scarborough)


Cormack, Patrick
Knight, Mrs Jill
Shelton, William (Streatham)


Corrie, John
Knox, David
Shepherd, Colin


Costain, A. P.
Lamont, Norman
Shersby, Michael


Craig, Rt Hon W. (Belfast E)
Langford-Holt, Sir John
Silvester, Fred


Crouch, David
Latham, Michael (Melton)
Sims, Roger


Crowder, F. P.
Lawrence, Ivan
Sinclair, Sir George


Davies, Rt Hon J. (Knutsford)
Lawson, Nigel
Skeet, T. H. H.


Dean, Paul (N Somerset)
Le Marchant, Spencer
Smith, Timothy John (Ashfield)


Dodsworth, Geoffrey
Lester, Jim (Beeston)
Spence, John


Douglas-Hamilton, Lord James
Lewis, Kenneth (Rutland)
Spicer, Jim (W Dorset)


Drayson, Burnaby
Lloyd, Ian
Spicer, Michael (S Worcester)


du Cann, Rt Hon Edward
Loveridge, John
Sproat, Iain


Durant, Tony
Luce, Richard
Stainton, Keith


Dykes, Hugh
McCrindle, Robert
Stanbrook, Ivor


Eden, Rt Hon Sir John
Macfarlane, Neil
Stanley, John


Edwards, Nicholas (Pembroke)
MacGregor, John
Steel, Ft Hon David


Elliott, Sir William
MacKay, Andrew (Stechford)
Steen, Anthony (Wavertree)


Emery, Peter
Macmillan, Rt Hon M. (Farnham)
Stewart, Ian (Hitchin)


Eyre, Reginald
McNair-Wilson, M. (Newbury)
Stokes, John


Fairgrieve, Russell
McNair-Wilson, P. (New Forest)
Stradling Thomas, J.


Farr, John
Madel, David
Tapsell, Peter


Fell, Anthony
Marshall, Michael (Arundel)
Taylor, R. (Croydon NW)


Finsberg. Geoffrey
Marten, Neil
Taylor, Teddy (Cathcart)


Fisher, Sir Nigel
Mates, Michael
Tebbit, Norman


Fletcher, Alex (Edinburgh N)
Mather, Carol
Thorpe, Pt Hon Jeremy (N Devon)


Fletcher-Cooke, Charles
Maudling, Rt Hon Reginald
Townsend, Cyril D.


Fookes, Miss Janet
Maxwell-Hyslop, Robin
Trotter, Neville


Forman, Nigel
Mayhew, Patrick
van Straubenzee, W. R.


Fox, Marcus
Meyer, Sir Anthony
Vaughan, Dr Gerard


Freud, Clement
Miller, Hal (Bromsgrove)
Viggers, Peter


Galbraith Hon T. G. D.
Mills, Peter
Wakeham, John


Gardiner, George (Reigate)
Miscampbell, Norman
Walder, David (Clitheroe)


Gardner, Edward (S Fylde)
Mitchell, David (Basingstoke)
Walker, Rt Hon P. (Worcester)


Gilmour, Rt Hon Sir Ian (Chesham)
Moate, Roger
Walker-Smith, Rt Hon Sir Derek


Gilmour, Sir John (East Fife)
Molyneaux, James
Wall, Patrick


Glyn, Dr Alan
Moore, John (Croydon C)
Walters, Dennis


Godber, Rt Hon Joseph
More, Jasper (Ludlow)
Warren, Kenneth


Goodhart, Philip
Morgan, Geraint
Weatherill, Bernard


Goodlad, Alastair
Morris, Michael (Northampton S)
Wells, John


Gorst, John
Morrison, Charles (Devizes)
Whitelaw, Rt Hon William


Gow, Ian (Eastbourne)
Morrison, Hon Peter (Chester)
Whitney, Raymond


Gower, Sir Raymond (Barry)
Neave, Airey
Wiggin, Jerry


Grant, Anthony (Harrow C)
Nelson, Anthony
Winterton, Nicholas


Gray, Hamish
Neubert, Michael
Wood, Rt Hon Richard


Grieve, Percy
Newton, Tony
Young, Sir G. (Ealing, Acton)


Griffiths, Eldon
Normanton, Tom
Younger, Hon George


Grimond, Rt Hon J.
Onslow, Cranley



Grylls, Michael
Oppenheim, Mrs Sally
TELLERS FOR THE AYES:


Hall-Davis, A. G. F
Osborn, John
Mr A. J. Beith and


Hamilton, Archibald (Epsom &amp; Ewell)
Page, John (Harrow West)
Mr. Richard Wainwright.







NOES


Abse, Leo
Fletcher, Ted (Darlington)
Millan, Rt Hon Bruce


Allaun, Frank
Foot, Rt Hon Michael
Miller, Dr M. S. (E Kilbride)


Anderson, Donald
Fowler, Gerald (The Wrekin)
Mitchell, Austin (Grimsby)


Archer, Rt Hon Peter
Fraser, John (Lambeth, N'w'd)
Mitchell, R. C. (Soton, Itchen)


Armstrong, Ernest
Freeson, Rt Hon Reginald
Molloy, William


Atkins, Ronald (Preston N)
Garrett, John (Norwich S)
Moonman, Eric


Atkinson, Norman (H'gey, Tott'ham)
Garrett, W. E. (Wallsend)
Morris, Alfred (Wythenshawe)


Bagier, Gordon A. T.
George, Bruce
Morris, Rt Hon Charles R.


Bain, Mrs Margaret
Gilbert, Rt Hon Dr John
Morris, Rt Hon J. (Aberavon)


Barnett, Guy (Greenwich)
Ginsburg, David
Moyle, Roland


Barnett, Rt Hon Joel (Heywood)
Golding, John
Murray, Rt Hon Ronald King


Bates, Alf
Gourlay, Harry
Newens, Stanley


Bean, R. E.
Grant, John (Islington C)
Noble, Mike


Benn, Rt Hon Anthony Wedgwood
Grocott, Bruce
Oakes, Gordon


Bidwell, Sydney
Hamilton, James (Bothwell)
Ogden, Eric


Bishop, Rt Hon Edward
Hamilton, W. W. (Central Fife)
O'Halloran, Michael


Blenkinsop, Arthur
Hardy, Peter
Orbach, Maurice


Booth, Rt Hon Albert
Harrison, Rt Hon Walter
Orme, Rt Hon Stanley


Boothroyd, Miss Betty
Hart, Rt Hon Judith
Ovenden, John


Bottomley, Rt Hon Arthur
Hattersley, Rt Hon Roy
Owen, Rt Hon Dr David


Bradley, Tom
Hayman, Mrs Helene
Palmer, Arthur


Bray, Dr Jeremy
Healey, Rt Hon Denis
Park, George


Brown, Hugh D. (Provan)
Heffer, Eric S.
Parker, John


Brown, Robert C. (Newcastle W)
Henderson, Douglas
Parry, Robert


Brown, Ronald (Hackney S)
Hooley, Frank
Pavitt, Laurie


Buchan, Norman
Horam, John
Pendry, Tom


Buchanan, Richard
Howell, Rt Hon Denis (B'ham, Sm H)
Perry, Ernest


Callaghan, Rt Hon J. (Cardiff SE)
Hoyle, Doug (Nelson)
Phipps, Dr Colin


Callaghan, Jim (Middleton &amp; P)
Huckfield, Les
Prescott, John


Canavan, Dennis
Hughes, Mark (Durham)
Price, C. (Lewisham W)


Carmichael, Neil
Hughes, Robert (Aberdeen N)
Price, William (Rugby)


Carter-Jones, Lewis
Hughes, Roy (Newport)
Radice, Giles


Cartwright, John
Hunter, Adam
Rees, Rt Hon Merlyn (Leeds S)


Castle, Rt Hon Barbara
Irvine, Rt Hon Sir A. (Edge Hill)
Reid, George


Clemitson, Ivor
Irving, Rt Hon S. (Dartford)
Richardson, Miss Jo


Cocks, Rt Hon Michael (Bristol S)
Jackson, Miss Margaret (Lincoln)
Roberts, Albert (Normanton)


Cohen, Stanley
Janner, Greville
Roberts, Gwilym (Cannock)


Coleman, Donald
Jay, Rt Hon Douglas
Robertson, George (Hamilton)


Concannon, Rt Hon John
Jeger, Mrs Lena
Robinson, Geoffrey


Cook, Robin F. (Edin C)
Jenkins, Hugh (Putney)
Roderick, Caerwyn


Corbett, Robin
John Brynmor
Rodgers, George (Chorley)


Cowans, Harry
Johnson, James (Hull West)
Rodgers, Rt Hon William (Stockton)


Craigen, Jim (Maryhill)
Johnson, Walter (Derby S)
Rooker, J. W.


Crawford, Douglas
Jones, Alec (Rhondda)
Roper, John


Crawshaw, Richard
Jones, Dan (Burnley)
Rose, Paul B.


Cronin, John
Judd, Frank
Ross, Rt Hon W. (Kilmarnock)


Crowther, Stan (Rotherham)
Kaufman, Gerald
Rowlands, Ted


Cryer, Bob
Kerr, Russell
Ryman, John


Cunningham, G. (Islington S)
Kilroy-Silk, Robert
Sandelson, Neville


Cunningham, Dr J. (Whiteh)
Kinnock, Neil
Sedgemore, Brian


Dalyell, Tam
Lambie, David
Selby, Harry


Davidson, Arthur
Lamond, James
Sever, John


Davies, Bryan (Enfield N)
Latham, Arthur (Paddington)
Shaw, Arnold (llford South)


Davies, Rt Hon Denzil
Leadbitter, Ted
Sheldon, Rt Hon Robert


Davies, Ifor (Gower)
Lestor, Miss Joan (Eton &amp; Slough)
Shore, Rt Hon Peter


Davis, Clinton (Hackney C)
Lever, Rt Hon Harold
Short, Mrs Renée (Wolv NE)


Deakins, Eric
Lewis, Ron (Carlisle)
Silkin, Rt Hon John (Deptford)


Dean, Joseph (Leeds West)
Litterick, Tom
Silkin, Rt Hon S. C. (Dulwich)


de Freitas, Rt Hon Sir Geoffrey
Loyden, Eddie
Silverman, Julius


Dell, Rt Hon Edmund
Luard, Evan
Skinner, Dennis


Dempsey, James
Lyon, Alexander (York)
Smith, Rt. Hon. John (N Lanarkshire)


Dewar, Donald
Lyons, Edward (Bradford W)
Snape, Peter


Doig, Peter
Mabon, Rt Hon Dr J. Dickson
Spearing, Nigel


Dormand, J. D.
McCartney, Hugh
Spriggs, Leslie


Duffy, A. E. P.
McDonald, Dr Oonagh
Stallard, A. W.


Dunn, James A.
McElhone, Frank
Stewart, Rt Hon M. (Fulham)


Dunwoody, Mrs Gwyneth
MacFarquhar, Roderick
Stoddart, David


Eadie, Alex
McGuire, Michael (Ince)
Stott, Roger


Edge, Geoff
MacKenzie, Rt Hon Gregor
Strang, Gavin


Edwards, Robert (Wolv SE)
Maclennan, Robert
Summerskill, Hon Dr Shirley


Ellis, John (Brigg &amp; Scun)
McMillan, Tom (Glasgow C)
Swain, Thomas


Ellis, Tom (Wrexham)
McNamara, Kevin
Taylor, Mrs Ann (Bolton W)


English, Michael
Madden, Max
Thomas, Dafydd (Merioneth)


Evans, Fred (Caerphilly)
Magee, Bryan
Thomas, Jeffrey (Abertillery)


Evans, Gwynfor (Carmarthen)
Mahon, Simon
Thomas, Mike (Newcastle E)


Evans, Ioan (Aberdare)
Mallalieu, J. P. W.
Thomas, Ron (Bristol NW)


Evans, John (Newton)
Marshall, Dr Edmund (Goole)
Thompson, George


Ewing, Harry (Stirling)
Marshall, Jim (Leicester S)
Thorne, Stan (Preston South)


Faulds, Andrew
Mason, Rt Hon Roy
Tierney, Sydney


Fernyhough, Rt Hon E.
Maynard, Miss Joan
Tilley, John


Fitch, Alan (Wigan)
Meacher, Michael
Tinn, James


Flannery, Martin
Mikardo, Ian
Tomlinson, John







Tomney, Frank
Weitzman, David
Wilson, Gordon (Dundee E)


Torney, Tom
Wellbeloved, James
Wilson, Rt Hon Sir Harold (Huyton)


Tuck, Raphael
White, Frank R. (Bury)
Wilson, William (Coventry SE)


Urwin, T. W.
White, James (Pollok)
Wise, Mrs Audrey


Varley, Rt Hon Eric G.
Whitehead, Phillip
Woof, Robert


Walker, Harold (Doncaster)
Whitlock, William
Wrigglesworth, Ian


Walker, Terry (Kingswood)
Wigley, Dafydd
Young, David (Bolton E)


Ward, Michael
Willey, Rt Hon Frederick



Watkins, David
Williams, Rt Hon Alan (Swansea W)
TELLERS FOR THE NOES:


Watkinson, John
Williams, Alan Lee (Hornch'ch)
Mr Ted Graham and


Weetch, Ken
Williams, Rt Hon Shirley (Hertford)
Mr Thomas Cox.

Question accordingly negatived.

Sir G. Howe: On a point of order, Mr. Deputy Speaker. I understood that amendment no. 6 had been selected for a vote.

Mr. Deputy Speaker (Sir Myer Galpern): No. I am afraid that I must rule that amendment no. 6 has not been selected for a vote—only for debate.
Further consideration adjourned.—[Mr. Joel Barnett.]

Bill, as amended in the Committee and in the Standing Committee, to be further considered this day.

GUARANTEE AND WARRANTY COMPANIES

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Bates.]

12.19 a.m.

Miss Betty Boothroyd: rose—

Mr. Deputy Speaker (Sir Myer Galpern): Order. I must ask right hon. and hon. Members to leave the Chamber quietly. The hon. Lady has to carry on. It is late already and she would like to get home.

Miss Boothroyd: The object of this debate is to draw attention to the manner in which some guarantee companies or warranty companies operate to the detriment of motorists. I appreciate the opportunity, even at this late hour, of airing a matter which has adversely affected many motorists. I refer to people with not a lot of cash to spare who buy second-hand cars. A large proportion of them, in good conscience, also buy warranties as means of keeping their cars in a proper state of repair and in good roadworthy condition. The purchasers of second-hand cars are being taken for what I call a financial ride by a type of

insurance agreement which the company selling the insurance has little or no intention of accepting when a claim is made. Further, in the situation that I shall try to outline this evening, the company did not have sufficient financial resources to meet all the claims made.
The subject falls into three main areas. First, it covers the consumer—the car owner, who is the warranty holder. The second area is the financial standing of the company selling the warranty. The third area, which is what I would question the Minister about, relates to safeguarding the public against disreputable business activities.
Thousands of people today buy secondhand cars. Many of those people, at the time of buying the vehicles, also purchase what is known as a warranty. That warranty covers the car owner against some of the costs of subsequent repairs. In fact, it is something like an insurance policy.
But problems begin to arise when the car needs repair or when a defect is noticed. Complaints have been brought to my attention because the warranty company procrastinated over so many months that even the most persistent claimant gave up pursuing his claim in exasperation and eventually settled for a small percentage of the real cost involved. In many cases the company was financially incapable of meeting the claims.
The system works something like this. Currently, a warranty company does not have to comply with existing legislation because a warranty can be sold with promotional material—that is, an oil additive or repair kit to be used in conjunction with the warranty. The arrangement of selling this promotional package places the company outside the legislation. The terms of the warranty are very precise and stipulate strict compliance with its terms. Unfortunately, the average purchaser does not appreciate that the slightest non-observance of the terms is a potential bar to his claim. He believes


that, by taking such a warranty, he is in fact acting very prudently.
One national newspaper recently mentioned that there are thousands of such people. I can neither confirm nor deny that. However, I have evidence at my disposal. I am aware of well over 150 cases in which, after a great deal of time and effort, approximately half the claims were met, but only in part, and in the remainder no financial settlement has been obtained by people who firmly believed that they were insured.
Out of all the cases, it is appropriate to mention one—in fact, one of the more fortunate cases. A claim was made because of a gearbox fault. In the first six weeks the owner made 10 telephone calls to the company and wrote six letters. The company said that the car had been driven after the fault had developed. A motoring organisation was subsequently called in and it put its legal department and technical experts on the case.
Telephone calls and letters passed among all the parties concerned, but 12 months elapsed before the matter was finally resolved. At that time, in desperation, the car owner accepted an offer of about 45 per cent. of the total claim.
I refer to the company known as Revolution Oil International. It is a warranty company of which the Minister is aware. In my opinion, it has used every excuse in the book to withhold payment on claims that have been submitted to it. It has made all sorts of excuses for not meeting the claims. In some instances it has said that the oil used was used seven days too late. It has said that the service was not carried out at the precise mileage at which it ought to have been done. It has said that a certified mechanic had to attend the car. What is "a certified mechanic"? It has insisted that replacement parts did not have the manufacturer's approval. In fact, the company has used every argument imaginable to avoid its obligations under the warranty and to attempt to cheat those whom it claimed to be seeking to protect.
Let me now deal with the financing of this company. It was formed in July 1974 with a paid-up capital of £100. That was subsequently, and quite normally of course, increased to £100,000 in £1 shares. As the House will appreciate, that

does not necessarily mean that at any one time it had that amount of money available to meet the claims. It eventually had to go into liquidation—that was in April of this year—and just before doing so a director of the company boasted that 70,000 warranties had been issued, at an approximate cost of £20 each, covering repairs to the value of £150. If my calculations are correct, it means that the company had a liability of £750,000. The liquidator finally indicated that there was little or nothing available to meet the claims.
Although the company was in the habit of presenting itself as an international organisation, that was not the case. The company purported to be part of an international organisation, and the first paragraph of its warranty says:
Dear Warranty Holder,
You are now one of the many thousands of motorists in the world taking advantage of a Revolution warranty.
The implication was that an overseas company would meet the liabilities, but, as the Minister is well aware, that turned out to be a false impression. I suggest that this company had nothing like the resources necessary to function in a business at all.
Perhaps I may sum up two points. I think that it is not unreasonable to say that in using promotional material in conjunction with a warranty drawn in precise terms the company was able to operate and avoid existing provisions. Moreover, it operated, I believe with some confidence, believing that it would not have to meet its liabilities, and thereby hoping for a good rip-off from the second-hand car owner who put faith in the company.
Furthermore, and this is equally important, there appear to be few, if any, requirements to be met by a company which trades without having the financial backing to meet its liabilities. It is practising as an insurance company, without having to insure itself. I believe that this is common practice in the United States. I hope that that sort of practice will not be exported here, because I can only describe it as a total racket.
I come to my third point, which is how to proceed to prevent such rackets in the future because even now it is open to anybody to form another company with limited capital and with no liability to


insure against any risks that he incurs. I shall not trespass and request new legislation—I know that I should not do that in a debate such as this—but surely it is open to me to suggest that the powers that have been given to the Director General of Fair Trading are not being exercised as stringently as they might be.
The Director General already has powers under Part III of the Fair Trading Act 1973 to seek assurances from a company that the trading practices complained of are not detrimental to the interests of the consumers, and to seek assurances of responsible future behaviour. When such assurances are not forthcoming or, if given, are subsequently broken, I understand—perhaps my hon. Friend will correct me if I am wrong—that the Director General can seek an order from the Restrictive Practices Court prohibiting the company from continuing that conduct or indulging in similar conduct. I think that noncompliance would constitute contempt of court. I do not suggest that it is the best method to deal with the current and perhaps the future behaviour of such companies, but it happens to be the best method I am able to suggest in the constrained terms of this debate.
Perhaps I might take the matter a stage further by asking the following question. Should the Director General find that the existing powers are inadequate, would not he be in a position to report on that situation and suggest what is needed in this area, with which he is so familiar? Could not he report to the Minister on what might be done in the future? Many ordinary people have made sacrifices to buy a little second-hand car to give the family some pleasure. I believe that they have been cheated and that a company has been allowed to operate in a most anti-social manner. I ask my hon. Friend for his comments and views.

12.32 a.m.

The Minister of State, Department at Prices and Consumer Protection (Mr. John Fraser): My hon. Friend the Member for West Bromwich, West (Miss Boothroyd) asks me to ask the Director General of Fair Trading to seek assurances. I shall draw that request to his attention as soon as I can.
My hon. Friend raises the question of Guarantees and warranties. For the sake

of brevity, I shall use the word "guarantees" to include warranties. The word implies a solemn pledge, a rather solid assurance. The use of the guarantee is a well established practice for marketing and sales. When one thinks of the word one almost conjures up an image of the ribbon and the seal and all the paraphernalia of the solemn legal covenant. I am afraid that too often over the years some guarantees—by no means all—have proved to be a kind of fool's gold. It would have been a lie to say that some guarantees were not worth the paper they were written on, because some have been worth rather less, in that they have taken away the rights of consumers, rights which were conferred by common law or by the Sale of Goods Act.
I think that the commonest problem in the past was the guarantee given with a second-hand car. The fine print used to say that it was a three-month guartee in lieu of all express and implied warranties, in lieu of all statutory obligations. The guarantee was worth less than the paper it was written on and took away people's rights.
That abuse was cured as to goods in 1973, and by a statute that came into force last year was cured as to the hire of goods and the supply of services. Therefore, that problem has been resolved. It is now an offence even to pretend or to give the impression that a guarantee takes away people's basic rights.
Too often consumers fail to realise their rights under the Sale of Goods Act and amending legislation. I would emphasise that those who took the guarantees described by my hon. Friend may well still have rights against the sellers of the vehicles if the goods were not of merchantable quality, and they should see whether those rights might still be exercisable.
There are three types of guarantee—I am talking about consumer transactions, because I am sure that those are what concern my hon. Friend. First, there is the sort of guarantee given by a vendor to a purchaser on the purchase of goods or services. In consumer transactions the law is now such that guarantees like that can only add to, and cannot detract from, the consumer's rights. But the problem is that in some cases I suspect that the addition to rights which a guarantee gives


—and the guarantees my hon. Friend mentioned are of this nature—is more an addition on paper than it is in reality.
Someone selling motor vehicles, oil, repair kits or domestic equipment can be a man of straw and shower his customers with guarantees and warranties but make no provision whatever for contingent liability which may arise on the guarantees. In other words, he does not act with the prudence with which an actuary would act, or with the prudence or obligation with which an insurance company would act. That is the problem there.
Secondly, there is the guarantee which is given by a manufacturer who owes no contractual duty to the possessor of goods because he did not sell them direct to the consumer. In those cases the guarantee is perhaps used as a marketing ploy. There has been very considerable concern about guarantees given voluntarily by manufacturers—so much so that the Director General of Fair Trading is looking into the matter at the moment. I can do not better than to quote from the consultative document that he recently issued. Referring to this type of guarantee, he said:
Complaints about guarantees are numerous—1,397 were reported to OFT … in the first half of 1977. In general, complaints were from consumers who found that the benefits they could obtain from guarantees fell short of what they had expected: they were required to pay part of the cost of putting goods right themselves (for example, they had to pay labour, or call-out, or carriage costs); or the particular component that had gone wrong was not covered by the guarantee; or the guarantee period was of short duration and had expired; or the guarantee on goods they had received as a gift was in the name of the original purchaser and could not be transferred; or after repeated attempts at repair by the manufacturer goods were still not working properly when the guarantee period ran out.
The Director General has drawn the attention of trade associations to this and has sent out a consultative document. In the context of the replies to that document, I have raised the matters which have been referred to by my hon. Friend tonight.
The third type of guarantee is that which is sold on its own. It is not sold with the product at all. It is called technically a non-product warranty scheme, where the vendor sells the guarantee without any goods at all, and the effect of doing that is that he acts as an insurer.

For instance, the Automobile Association sells vehicle warranties and guarantees. It has to be covered as an insurer and there is the protection of insurance law in those circumstances.
The activity of selling guarantees and warranties is apparently confined to vehicles, and it is quite different from guarantees and warranties by manufacturers. Where the warranty is not placed on the use of the product specified by the warranty company, the company will need to have a group policy with an authorised insurer. It is, in fact, conducting an insurance business. I have received no complaints in the case of the non-product warranties which are covered by insurance law.
The crucial question—I am glad that my hon. Friend has raised it—of what constitutes insurance business and what does not is a matter for my right hon. Friend the Secretary of State for Trade. Whether a particular activity amounts to insurance business—with all the implications that that would have by way of requiring regulatory control and the protection of policy holders—is ultimately a matter for determination by the court.
I understand that the Department of Trade took the view that the business which had been undertaken by the Revolution Oil Company up to the time of its liquidation did not amount to insurance business. I understand that the legal point—some might think it is a legalistic point—is that the risks concerned could have been influenced by the company providing the cover in specifying the use of a particular product, in this case an oil additive. I say "could have been". I think it is much more a theoretical matter than a matter of reality. But it was not, in the circumstances and as the law stands, possible to provide protection to the consumer which would have been available if the company had been an insurance company.
I would not wish to suggest, in the light of complaints about Revolution Oil, that consumers should avoid taking up a warranty, whether of a non-product or a product variety. That is a matter for their choice, though they ought to give great consideration before they make that choice. But the recent Office of Fair Trading report on cars suggests that buyers of used cars would be well advised, for their protection, to deal with members


of the Motor Agents' Association or the Scottish Motor Trade Association.
The mass of evidence that we have from the Office of Fair Trading and from consumer advice centres and citizens advice bureaus is that most of the complaints and most of the prosecutions are against car dealers who do not belong to those associations who do not subscribe to the voluntary code of conduct, and who are outside the voluntary arrangements which have been negotiated by the Office of Fair Trading.
Therefore, one bit of advice is to deal with a reputable trader who subscribes to the code approved by the Director General of Fair Trading. Before making expensive purchases, it is always wise to look at the advice, often in leaflet form, published by the Office of Fair Trading, giving advice on buying cars and on getting them serviced and repaired.
I am very sorry that in this case all the complaints that came to my Department came after the company had gone into voluntary liquidation. It is very often a question of the horse having bolted. But I do not underestimate the scale of the problem. I think that there was one quotation in the Sunday People which ascribed to the chairman of the company the fact that 600,000 people held warranties. My hon. Friend says that the number was 70,000. The figure of 600,000 may be an exaggeration, but, whatever the figure, it was certainly a substantial amount of business.
My hon. Friend has raised what is possibly a serious gap in the law whereby a

company could circumvent the spirit and the intention of insurance law, which is intended to protect consumers, by selling a product along with a warranty, and circumventing protection and then having to make no provision for the sort of contingent liabilities which are likely to arise.
I have told my hon. Friend that the Director General of Fair Trading is already considering the subject of guarantees. I finish on this note. What I propose to do is to draw to the attention of the Director General the contents of this debate and to convey to him my hon. Friend's concern. As the matter also concerns the Department of Trade, I have already taken the opportunity of speaking to one of my fellow Ministers in that Department. I intend to look into this problem as soon as I possibly can and have discussions with that Department as well.
It is not easy to define the difference between insurance business and warranties sold with products. One knows it when one sees it, but it is very difficult to define it in legal terms. But my hon. Friend has done a valuable service in raising what may be—I say "may be"—a loophole in the law, which may have been circumvented by one company, which could possibly arise again. In the context both of the review of guarantees by the Director General and of the points raised by my hon. Friend, I certainly undertake to have those discussions.

Question put and agreed to.

Adjourned accordingly at seventeen minutes to One o'clock.